Please scroll to the bottom of this post to find links to our previous posts.
“Do I need landlord insurance and if so, what policy should I buy?” One of the questions we are often asked by our landlords. The arrival of COVID and its affects on the lives and livelihoods of tenants and landlords alike has added to the interest in getting the definitive answer to whose policy is the best or offers the best value.
Many real estate agents do recommend and can sign you up for one and sometimes a choice of two brands though it may not be always obvious that they have a deal with those suppliers and that they will get a small commission for helping you. We are not saying that it is necessarily a bad thing as they are usually offering credible and market leading brands as well as offering you a service.
We have had landlord insurance ourselves for over 21 years and we can also draw on the experiences of some of our landlords who have had insurance for much longer than that. So to be able to answer the question we recently looked into landlord insurance in some depth and we learnt a lot including that there may be more to understanding it than many realise.
What are our thoughts and experiences?
We have spoken to landlords, insurance companies and also to some insurance industry insiders and clearly most people are happy with their choice of insurance as were we. However, when asking landlords for details of their experiences you realise that like ourselves very few people have ever had to put in a claim. Those few that have claimed have had a range of different experiences and whilst some people have been very happy with the result others have not.
One thing that has become obvious to us is that whilst everyone has been happily paying for the peace of mind offered by insurance for years it is only when they claim that they discover exactly what is covered and more importantly what is not covered.
Insurance insiders tell us that landlord insurance policies generally exist to cover significant or catastrophic issues. Many landlords believe that they cover wear and tear, accidental damage generally or protect against lack of oversight by negligent real estate agents. They do not and this is the source of most claims dissatisfaction.
Their primary value is in offering liability insurance to cover injuries to tenants, visitors etc which might give rise to claims against the landlord for negligence (real or otherwise, especially when there is poor oversight of potential hazards by agents as is often the case).
Their additional value is in covering malicious damage or theft by tenants or their guests and covering fire damage (tenant leaves candle burning etc) and water damage (tenant lets bath overflow etc). Subsequent rent loss caused by a covered event is usually also covered by the policy. Fire or water damage of any kind and sometimes glass breakage is separate to general accidental or malicious damage and is covered by most policies.
COVID created quite a set of issues for insurers and landlords. Many underwriters of landlord insurance policies withdrew rent default support from new policies which also generally removed support for any specific tenant related claims from new policies. Some companies stopped issuing policies altogether for a while.
Landlord insurance policies are usually standard contents or contents and building insurance products to which coverage for tenant related issues is attached as an option or as a standard inclusion. It seems that within the industry these two halves are often underwritten in the background by different insurers or re-insurers.
Because of the COVID underwriting issues some insurers were offering reduced coverage policies without clauses covering the actions of tenants at a reduced price but almost all have now returned to offering fully featured policies at the original or even increased prices.
Prior to COVID a big deal was always made about rent default coverage and whilst that is now coming back to policies the devil is in the fine print. Many policies require the tenant to actually have been evicted by order of NCAT, the NSW Civil and Administrative Tribunal. Not always what happens in the real world. Sometimes tenants just leave without an NCAT order. NCAT is where almost all residential tenancy disputes wind up.
Policies generally do not cover the first 4 weeks of rent default as the insurers expect that to come from the rental bond. It can get complex if you need some of the bond to fix damage that is beyond the acceptable "normal wear and tear” as defined by the Act but not actually malicious which may then be covered by the insurance.
There are scenarios whereby the landlord has losses even with insurance in place. The difficulty in proving malicious vs accidental to an insurer is a major complaint made by claiming landlords.
Real estate agents can chase tenants for rent when it is over 14 days in arrears so whilst many areas of landlord insurance dissatisfaction are caused by a lack of understanding they are often compounded by agents not doing the right thing at the right time and letting things get out of hand.
We always thought that a major nightmare scenario for landlords would be a flexible hose under a vanity or on the dishwasher rupturing and flooding other units or common areas. It has been explained to us by people in the insurance and underwriting industry that in NSW you are not liable for water damage to other people's property.
The situation is different in Victoria where the Water Act allows a claim when damage is caused by water from another property. Given that none of us are legally required to replace old flexible hoses past their use-by date and also since landlords are not likely to be able to be held legally responsible for their tenant's actions we believe now that our imagined problem is not real.
So, what policy to buy?
As mentioned earlier these policies are generally contents-only policies (for strata units where the building itself is covered by the body corporate’s insurance) or building and contents policies (for standalone properties). Tenant liability clauses (malicious damage, occasionally some degree of accidental damage, theft, rent loss) are incorporated in the coverage sometimes offered as an option.
Some providers offer standard pre-defined policies priced according to which Australian state the property is in, to which you may or may not be able to add options. Other providers offer totally customised policies often quoted down to the street address where you can specify how much contents or building cover you need. Some insurers offer both. With a few policies you can choose the amount of the claims excess and thereby reduce or increase the yearly premium.
So, with all this level of choice it can be hard to pick between “the apples and the oranges” whilst deciding what cover you really need to pay for.
And today there are almost too many providers to choose from!
Costs for strata-unit policies (contents only and contents only with tenant clauses added or offered as standard) start from around $225 up to $600 or so. Building and contents policies for standalone properties with or without tenant cover vary dramatically with the replacement value of the building and of course cost more.
Most companies will quote or sell from their websites and in some cases, it is the only way you can get quotes or even buy a policy. Generally, it is very easy to get quotes and buy, you enter your details including the property’s street address, name and age of landlord, contents and building value and work through the options if offered.
Important disclaimer, real estate agents including Northwood cannot legally advise you on insurance purchases and you need to make your own enquiries. It is surprising that agents can sign you up for their recommended policies though!
You will be choosing between the traditional landlord insurance providers such as Terry Sheer and EBM through to major insurers including AAMI, NRMA, CGU, Budget, GIO, QBE, AON and others. Today you can also buy these policies from non-traditional insurance vendors such as Woolworths, Virgin, ING and similar businesses. A couple of our landlords who have more significant investment holdings get their cover through a broker and are very happy with results.
Policies vary in what they cover and generally the more you pay the more you get. You need to decide whether you are happy with a basic “canned” policy that may well be the best value and will protect you against all the big things or how much you more you are happy to pay for extra or higher levels of cover. When comparing the basic cheaper policies check on their levels of cover, there is quite a variation in what they offer.
Differences worth considering are whether they include any accidental damage by the tenant such as for carpets, curtains and blinds or damage by pets including visitor's pets. Damage to carpets, curtains and blinds is a thing in tenancy so it may be something you choose to self-insure for or pay a higher premium for coverage. Policies do not commonly cover any accidental damage by the tenant other than water, fire or glass.
Damage may have to be malicious to be covered and provable as such to get coverage.
Policies also vary in their maximum coverage for a specific area of their coverage, often up to $50,000 but it can be much less. It is worth remembering that the bond may cover some possible damage but not always and that all these policies have a claims excess which will determine whether you bother claiming or not.
Most landlords we know want tenant related coverage. Policies that offer that as an option vary with some of the best value policies adding only $50 to the premium and others adding a lot more.
In Conclusion
Policies do offer real benefits and will protect you from what could be very large expenses in particular circumstances. It is important to understand what is covered and what is not covered by your policy. Policies cover a very large range of prices and it is also important that you choose one that offers the level of cover that you need. All the policies including the cheaper ones will cover you for the big issues so if you plan to pay more please consider what extras may actually be useful to you.
Please do not hesitate to contact us on (02) 9871 3888 or at ask.us@northwood.com.au if you want to discuss or comment on our insurance thoughts.
