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Should I have landlord insurance?

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Apartment investors often have lots of questions about landlord insurance.

    • Should apartment investors have landlord insurance?
    • Is apartment landlord insurance different from house landlord insurance?
    • What does apartment landlord insurance cover and how much does it cost?

Landlord insurance is generally voluntary for apartment investors. Otherwise a bank may require it a part of the mortgage conditions or an ownership agreement or trust deed might stipulate it.

The merits of having landlord insurance is similar to other insurances where you weigh up things like,

  1. Your comfort with carrying the risk.
  2. The likelihood of making a claim.
  3. The financial impact of a substantial claim if you are not covered.

To fully evaluate the risks it is important to first understand what they are. We find some apartment investors are surprised to learn the extent of potential loss when things go wrong. Things like many months of no rent waiting to evict a tenant who has stopped paying rent and don’t move out. Or lost rent when your apartment is damaged and your tenant needs to move out until your apartment is occupiable again. Other things like tenant damage are generally more understood.

Apartment vs house landlord insurance

One of the main differences between apartment and house landlord insurance is that owners corporations (OC) will usually have building insurance as part of the overall management responsibilities. Therefore apartment owners only need to consider landlord risk while house investors often take out a combined building and landlord insurance cover.

Importantly for apartment investors, the building insurance taken out by an OC generally covers the main structure and common areas of a building only. It does not usually cover an apartment’s contents such as carpets, floorboards, blinds, curtains etc even if there is a general building issue like a major water leak / flood from building sprinklers for example.

What does landlord insurance cover?

Assuming the OC has taken out building insurance, and the tenant has contents insurance, this just leaves landlord insurance which is an exposure to things like rental income and tenant damage to the extent that the cost exceeds the bond.

Policies, cover, conditions and premiums vary, but generally landlord insurance covers the following.

  • Property Damage: Accidents happen, and unexpected incidents can cause significant damage to your investment property. Whether it’s a fire, a burst pipe, or severe weather conditions, repairing the resulting damage can be costly. Landlord insurance typically covers the repairs from these events, ensuring apartment owners can restore their properties without bearing the full financial burden.
  • Loss of rent:  If an apartment becomes uninhabitable due to a covered event, such as a fire or flood, the owner may be unable to generate rental income until repairs are complete. Landlord insurance often includes coverage for loss of rental income, providing a financial safety net during the restoration period.
  • Tenant default and eviction: Dealing with tenant defaults and evictions is an infrequent but unfortunate reality of apartment investing. Evicting a tenant can be time-consuming and costly. Landlord insurance can offer coverage for rental default, ensuring owners receive the rent owed even if the tenant fails to pay. Additionally, eviction costs, such as legal fees and court expenses, may also be covered.
  • Malicious Damage and Theft: Despite careful review of tenants applications and regular apartment inspections, not all tenants remain respectful and responsible. This can create significant repair and replacement costs. Landlord insurance can protect against such situations, offering coverage for malicious damage caused by tenants and theft-related losses.
  • Legal protection and liability:  Landlord insurance often includes legal assistance and coverage for legal expenses related to disputes with tenants. Having access to professional legal advice can help apartment investment owners protect their rights and resolve issues efficiently, saving them time, money, and stress.

These are the main items but there are sometime other things covered like clean-up of a drug lab or death of tenant and the process of remediating that situation.

If you are leasing an apartment furnished you may also consider an additional cover for the apartment contents like furniture, kitchen items, whitegoods etc.

How much does landlord insurance cost?

The cost of landlord insurance varies from state to state and may often be less if it the property is managed by an agent approved or accredited by that insurer. Always check what premium you property manager is able to get for you.

Wood Property is an approved agent by its preferred supplier and can provide landlord insurance (excluding building insurance) for under $500 per annum.

Wood Property are not license insurance brokers nor are we insurance providers and are not qualified to provide insurance advice. If you would like to know more about landlord insurance we can provide you with further information from our preferred provider for you to consider. Otherwise please contact your insurance broker or provider.

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Written by a 4th generation real estate agent Apartments Made Easy gives you the tools and tells you all you need to know about how to buy, sell, own, lease, and manage your apartment successfully.

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