At its best, your rental asset provides a steady stream of passive income. But the course of property investment doesn’t always run smoothly. When a tenant breaks a window, their lease, or even their own leg, you’ll want the right combination of cover to ensure your profits aren’t all eaten up.
Ask yourself:
Don’t let your property investment assets become a liability; get a clear view of your current exposures with our free insurance analysis report. We’ll drill down on your cover, revealing any gaps and canvassing your options.
Landlords insurance is really a catchall term for a set of policies used to mitigate the various risks involved in leasing out a property as an investment. Most landlords will have building cover for their rental, but there’s a range of other components that constitute an effective insurance strategy for investment properties.
If a natural disaster or fire reduced your rental property to rubble, are you confident your cover would fund a full rebuild at today’s rates? If not, you are at risk of losing your investment in the event of a total loss, as the inability to restore your property to its previous condition can lead to lower rental yields, ultimately making you unable to cover your mortgage.
We deploy the industry-standard Cordell replacement estimate calculator on all clients’ rental properties to ensure the total sum insured is at the right level to guarantee your investment in the worst-case scenario.
Protecting yourself as a landlord requires some special components: cover against rent default, loss of rent, plus theft and malicious damage by tenants. While the latter is pretty self-explanatory, loss of rent and rent default (they might sound like the same thing – but they aren’t) need some explaining.
Rent default provides limited income protection when a tenant stops paying rent or leaves without notice. The extent of cover varies between policies, and we’ll advise you of this. On the other hand, loss of rent cover only pays after damage to the building/contents renders part or all of the property uninhabitable. Some policies limit this cover to 12 months, which in many cases is not adequate as full rebuilds can easily exceed this timeframe.
A rental property is essentially a business premises, and your tenants are the customers. As such, you have a legal responsibility to provide a safe environment. And when your customers literally live at the place of business, you’re definitely going to want to indemnify yourself as a landlord.
Even diligent rental property providers can overlook seemingly little things – an uneven paver, a rotted step or balustrade – that can potentially lead to a major accidental injury. And just because something’s an accident, doesn’t prevent it from being your fault…
Do you offer extra inclusions to sweeten the deal for your tenants? Fully furnished and fitted out properties are increasingly common, especially in the high-end apartment market. Even if you don’t, building cover for landlords often excludes appliances, curtains, carpets, blinds, and floor coverings, so it’s something to bear in mind.
If your lease’s 4K flatscreen somehow drops off the wall or a spilled glass of cab sav ruins your pristine Coco Republic sofa, contents insurance can get guarantee rapid replacement (without the drawn-out debt recovery process).
Water damage from major overland flooding, your roof being ripped off by a category 4 cyclone’s 200km-per-hour winds, a fast-moving bushfire burning the place to the ground. These sorts of natural disaster-induced damages are becoming increasingly common in Australia, making the right cover harder and more expensive to get.
But a new method called parametric insurance offers landlords innovative ways to obtain the right risk transfer for their investments. Unlike traditional claims-based policies which compensate you for damage and loss, parametric cover pays out a lump sum if triggered by an objectively defined event. Once the trigger is met, you get fast payouts with no claims process, guaranteeing a base level of cover or giving your traditional policy a top up.
Let’s look at an example. A landlord owns 3 luxury beachfront villas in the picturesque but cyclone-prone town of Port Douglas, North Queensland. She cannot get insurance that includes total replacement cover – where the insurer agrees to rebuild the villas to the same size and standard on a new for old basis – and is only covered to a limit of $750,000. In the current market, her luxury leases would cost on average $1,100,000 to completely rebuild.
Based on research, including advice from engineers and architects, she’s concluded that winds in excess of 200km per hour and an ocean swell over 4 metres would likely cause catastrophic destruction of all of her properties.
Working with a specialist broker, the landlord negotiates two separate parametric insurance policies with carefully configured trigger events. To mitigate the significant structural damage that would result from extreme storm-force winds, she opts for a trigger event involving gusts over 200km per hour being recorded by the Bureau of Meteorology weather station on the nearby Low Isles, offshore of mainland Port Douglas Shire. This is tied to a payout of $900,000, calculated to cover the cost of roof replacements for her 3 villas.
Second, to protect against storm surge inundation, she chooses a trigger of a Category 4 or higher cyclone making landfall within a 50km radius of the Port Douglas Yacht Club. Category 4 cyclones are characterised by ocean swells from 3.8m to 5.4m, making it likely that such a storm would flood all her properties. This policy has a $600,000 payout attached.
Such an event would almost certainly cause the first trigger to be met, a Category 4 cyclones are characterised by wind speeds from 225km to 279km per hour.
So, if a major cyclone disaster struck, and all 3 of the landlord’s luxury villas were completely written off, her customised combination of policies could net the following:
3 x $750,000 (maximum limit of traditional building cover) + $900,000 (for the first parametric trigger event) + $600,000 (for the second parametric trigger event)
= $3,750,000 in total insurance payouts.
Which would put her in good stead to rebuild to the previous standard, with a little left over that she could invest in improvements that might enhance resilience against future disasters.
The triggering event is tied to a specific parameter, or index, being met or exceeded. Insurers will only consider events and their related parameters if they are:
As one of only a few Australian insurance brokers specialising in parametric insurance, Burstows works with you to design and negotiate the right trigger parameters for your desired coverage level. If there’s pushback from the insurer, we have the option of choosing an alternate company or changing to a different index, while still protecting you from the relevant risk.
To help you better understand your risk and work towards more complete cover, we:
To help you settle on the right risk transfer approach, we:
To help you maintain your coverage and support you when things go wrong, we:
Our landlords insurance brokers have a deep knowledge of the property industry and the pressures faced by owners and property management. We work with you to ease the load of dealing with assessors and insurers.
From negotiating policies and premiums, to filing claims and ensuring assessors give decent damage assessments, we’re on the frontlines with you. We aren’t agents of any one insurer – we deal with all the major companies on your behalf.
When things go wrong – whether damage to your property, financial stress from unpaid rent, or a liability issue – we step in and shoulder the load. Our relationship with the Johns Lyng Group gives premium policy holders 24/7 access to emergency repairs Australia-wide.
Landlords insurance is essentially a catchall term for a collection of policies that can include:
Our free insurance analysis assesses your current coverage and takes into account the unique nature of your investment property to make a range of recommendations about how you might better manage your risks.
An in-depth breakdown of your current cover, identifying any potential fault lines and weak spots.
Market-wide policy comparison tailored to investment property owners.
An estimated building replacement cost powered by CoreLogic data, so you can see how your coverage measures up.
Flood mapping, so you can make informed decisions based on historical data.
It’s crucial to cover your investment property under a fit-for-purpose landlords insurance policy to ensure proper protection. There are certain risks that a tenant poses to the property that a normal home and contents policy won’t cover. For example, if a total loss scenario happened due to a tenant’s actions and the landlord had standard home and contents cover, it can carry multiple disclosure issues at claim time. Ultimately, the insurer may provide no coverage at all.
You also should cover potential loss of rent, protect yourself from malicious acts by tenants, and include a layer of public liability cover to protect against legal costs and losses arising from accidents and injuries incurred by tenants. All these fundamentals of a good landlords insurance package aren’t included in a standard home and contents policy.
Generally speaking, the building insurance component of your policy (or strata insurance in the case of apartments and units) covers structural elements like walls, floors, windows, and cabinetry.
So, even if you aren’t offering a fully furnished property, getting contents insurance as a landlord can make sense to cover damage to things like:
While owners of rental properties aren’t legally required to have insurance of any kind, the risks of renting out an uninsured property are unacceptably high for savvy investors. Without proper cover for your building, liability, and rental income, you’d be solely liable for the costs of:
Besides, all major banks require borrowers to have building insurance as a precondition of getting a mortgage. It makes sense to maintain this and add in critical components like rental cover and public liability protection for the life of your investment property.
Because despite the best intentions and maintenance schedules, accidents sometimes happen. If you’re found liable for injuries or hardships suffered by your tenants due to your negligence, the payouts can be eye-wateringly high.
For example, in 2013 a Melbourne court ordered a tenant be paid $300,000 compensation for serious injuries he suffered after the balustrade at his rental property unexpectedly gave way. The landlord was deemed liable for not keeping up the necessary maintenance to the property.
ZHBC Pty Ltd t/as Burstows is a Corporate Authorised Representative (No.471308) of McLardy McShane Partners Pty Ltd AFSL 232987.
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