How important is Landlords’ Insurance?

Some Investors think because they have a Property Manager, they don’t need Landlords’ Insurance, however it is one of the most important purchases an Investor can make.

What is Landlords’ Insurance? Landlords’ insurance covers you for tenant related risks, including loss of rental income, and loss or damage by tenants to your building or contents.

At any time the tenant’s situation can change. They could lose their job, experience a marriage separation, the main income provider can’t work due to injury, death of a tenant, tenant abandons the property, tenant moves out and moves in their friends who then damage the property…… The list goes on. These situations are out of the Property Manager’s control.

For example: Your tenants have had a perfect 5 year tenancy. Then husband and wife split, husband moves out and wife struggles to pay rent. Rent is 8 days in arrears, wife is given 7 days plus postage to rectify this. Wife fails to do so and is given 7 days to vacate plus postage, as per legislative requirements.  Wife cannot move out due to the children, costs, etc and now owes nearly 3 weeks rent.The agent applies to court, the hearing is in 3 weeks. The wife is still not paying rent, as she is saving for the new bond for the new property and also the cost of the move. The judge terminates the lease and gives the tenant 2 weeks to move out. Rent is now 8-9 weeks behind. The bond will be used for any cleaning, repairs, gardens, carpet cleaning etc before it goes to any rent arrears. The owner is now heavily out of pocket. Had the owner decided to take out Landlords’ Insurance, all of his costs would have been covered. Unfortunately, these or similar scenarios happen all the time.

What happens if the tenant dies in your property? Depending on the cause of death, there may be special guidelines Property Managers must follow, and they can be quite expensive. This is another example of what would be covered under your Landlords’ Insurance.

If you have an investment property, check with your current insurance provider what exactly you are covered for. Not all companies offer the same coverage.