Should you get landlord insurance for your rental property?

Property management

Landlord insurance can cover a variety of problems. In most cases, it is inexpensive and a worthwhile investment. However, you have to be careful when choosing landlord insurance. The insurance may or may not cover events you think it will cover.

Rent insurance for landlords

One type of landlord insurance is roughly called rent insurance. This type of insurance can cover a number of issues you may have with tenants. Provided you get the right type of comprehensive insurance, rent insurance can cover:

  • Theft by tenants or their guests
  • Damage to the premises caused by tenants or their guests
  • Legal expenses if you have to take action against a tenant
  • Liability if a claim is made against you
  • Loss of rent if a tenant moves out without paying rent

It has to be stressed that you need to compare insurance policies. Some cover more eventualities than others. You can pay less for coverage, but it may not give you the coverage you need.

If you have an investment property, you can claim your insurance at tax time. It won’t cover the entire cost of the insurance, but will lower your taxes.

If you own a strata property, the public areas may already be covered by insurance. In some cases, your strata payments may cover the unit you own. Check with the body corporate before you invest in rent insurance.

Landlord insurance: what does it cover?

Rent insurance will protect you if your tenant damages the property or leaves without paying the rent, but tenants are only one problem you may have. What about natural disasters or accidental damage to the property? Here again, you need to be careful when choosing landlord insurance.

Landlord insurance can cover you in a number of contingencies. Some of these may include:

  • Storm damage (including lightning)
  • Fire damage
  • Flood damage
  • Cyclone damage or ocean surges due to cyclones
  • Civil unrest (if your property is damaged during a riot or similar occurrence)

Depending on your location, any of these occurrences could be a serious threat to your rental property. Having the right insurance can save you thousands or tens of thousands of dollars.

The catch to house and landlord insurance is whether the insurance covers all types of natural disasters or social unrest. Another catch may be how comprehensive the insurance is. Does the policy cover everything or are some things left out?

A comprehensive policy should cover everything, including:

  • Pipes
  • Cables
  • Appliances (usually fixed appliances such as air conditioning, which cannot be removed)
  • Gas systems
  • Plumbing systems
  • Fixtures and fittings
  • Blinds and awnings
  • Some exterior buildings or a pool

In general, landlord insurance will cover items that cannot be easily removed. It may not cover curtains or blinds and probably won’t cover other items that can be removed or moved to safer ground.

While some types of landlord insurance do not cover the contents of a rental property, it is possible to purchase contents insurance as well. It will cost more, but contents insurance will cover the cost of the moveable contents of the house should a tenant have to evacuate quickly or doesn’t have the means to move the contents off the property.

Ideally, landlord insurance will also cover the rent while the property is being repaired. A tenant can’t be expected to pay rent if the property has been partially destroyed. It could be a month or more before the tenant can move back in or you find another tenant. Going without rent can put a big dent in your finances.

How much does landlord insurance cost?

Landlord insurance is not a “one size fits all” solution. There are several types of insurance available. Some insurance companies offer damage, liability and rent default insurance. Others might offer building coverage, contents coverage or building and contents cover.

The cost of landlord insurance will depend on several factors. How much coverage you need is one factor. The median price of the rental can be another factor. Some insurance companies make this a priority. You might pay:

  • $830 a month for a property that rents for $18,200 per year
  • $1112 a month for a property that rents for $20,800 per year
  • $1160 a month for a property that rents for $27,560 per year

These prices are approximate and may depend on your location. To find out how much you will have to pay, compare the rates offered by insurance companies in your area. Insurers will also base their rates on risk factors in different areas.

The rates above do not reflect the level of coverage you can expect to receive. A more comprehensive policy that covers tenants, the building and the contents will cost more than basic coverage.

Do I need landlord insurance?

Landlord insurance protects you in case something happens you have no control over. You may have the best tenants in the world, but even they may lose their job or become ill. You have no control over natural disasters and they can happen anywhere.

You do need landlord insurance, but you also have to compare insurers and get landlord insurance that covers expected and unexpected occurrences. Your budget may decide how much insurance you can afford, but keep in mind an unforeseen event can have devastating consequences on your finances. Choose landlord insurance wisely and you will be covered for any contingency.

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