In Australia today there are over 2.2 million different landlords receiving rental income from properties they lease for either commercial or for residential use. For many of those landlords, rental property is a large investment which they likely had to borrow money to make. It is important, then, to keep the rental income stream flowing and to be able to sell the property when they feel the time is right. Protecting it from damage is essential for both of those things.
However, while landlords can do a good job at filtering out irresponsible tenants during the application phase, there is no way to guarantee that a tenant won’t inadvertently or deliberately damage their property. This is where rental property insurance – also known as landlord’s insurance – becomes important. If you’re a landlord, this important coverage generally means that you will not take a financial hit if your property is damaged and needs repairs.
This guide will take you step-by-step through the process of choosing rental property insurance.
1. Select the correct property type
When you are looking for rental property insurance coverage, the policies will vary based on the type of property. Be careful when you choose because insurance companies draw a few distinctions that are not widely used in other contexts. For example, you might need to know the difference between a multi-unit complex and an apartment building, or whether your property meets the definition of “mixed-use.”
2. Know what you need
At its most basic, rental property insurance will make sure you have the money to make any repairs needed if your property is damaged by a fire or the weather. It usually also covers lost rental income if your property becomes uninhabitable while these are taking place.
Many, but not all, landlord insurance policies cover personal property, too. This means you’ll have the money to reimburse tenants if their property is damaged or stolen, and any of your own property in the unit will be covered against these things too. Some providers will also protect you against claims for damages if someone has an accident on the premises. If you require any of these things, make sure they are included.
3. Consider extras
Then there are more specific extras to think about. These are things like floods and earthquakes, which are often covered separately but may be added on. Mould and mildew damage is also not usually part of a standard package, but you might need it if the climate is very humid.
The deductible is the amount you have to pay before your insurance steps in to cover the rest. The premium is the monthly or yearly fee for your cover. They usually have an inverse relationship, i.e. a higher deductible means a lower premium. Consider both carefully to strike a balance which works for your budget.
Conclusion
Any responsible landlord should make sure that they are adequately covered against damage, theft, and any other relevant risks. Although it can be painful giving up some of that rental income, it is good business sense and can provide you with peace of mind.
