What’s covered by landlord insurance? 7 key questions to ask before you buy cover for your rental property
There’s no legal obligation for landlords to be insured, but it’s likely that your mortgage lender will require you to be covered. And if you’re hit with a public liability claim, or a big rent arrears bill, landlord insurance suddenly looks like a very good idea.
You’ll be bombarded with policy offers, so here are the key questions to ask:
1 Will I be covered for rent defaults and how big is the claims excess?
How long you can absorb non-payment of rent is a key question to be considered in your rental yield and affordability calculations.
If a tenant defaults on rent and has to be evicted the average time from issuing a claim to eviction is 45 weeks.
If only a few weeks’ non-payment is going to make a significant dent in your profitability you need to have the smallest-possible insurance claims excess. And you’ll need to be quick off the mark in chasing up late payments.
2 What are my maintenance obligations?
Some insurers will require evidence that pipework has been lagged, gutters and drains cleared and chimneys or woodburner stove flues have been regularly swept. Or they may not pay out on claims.
3 Do I have to take the maximum bond from my tenants?
If you reduce or waive your rental bond to attract a favoured tenant, will this invalidate your policy claim if you later have to claim for rent default, or damage after they move out?
4 Am I covered for malicious damage by a tenant?
If a tenant falls into arrears and you instigate eviction proceedings, the tenancy relationship can turn sour very quickly. It’s quite possible a tenant may deliberately vandalise the property (for instance by damaging a carpet so badly that it has to be replaced). Will you be able to claim for that?
5 How quickly do I need to chase up rent arrears?
Some insurers will stipulate that you must serve notice of rent arrears to a tenant promptly – or a later claim for unpaid rent may be denied.
Even if you want to be sympathetic towards a tenant facing difficult circumstances, it may be necessary to go through the formal notification process:
- a reminder within the first week of the rent being due
- another reminder a fortnight after rent day (and contact with the guarantor)
- a third claim 21 days after rent day
- serving a Section 8 notice when the rent is two months in arrears
And will your insurer cover any legal costs incurred in chasing rent arrears?
6 Am I covered for public liability claims?
If a tradesperson is injured while carrying out work at the property? Or if a tenant’s belongings are damaged by water?
7 Can I add another rental property later, with the same policy renewal date?
When you’re managing more than one rental property, keeping track of multiple policy renewal dates is arduous. If your cash flow can absorb it, having all your properties on the same policy makes management a lot simpler.
The big bonus
Landlord insurance is a tax deductible business expense against your rental income. Find the cover that suits you now: