Property MasterClass – Landlords Insurance
To insure or not to insure, that is the age old question…
First let me preface what I am about to say by confirming our official response is to always insure, and to have the best property and landlords insurance cover possible without exception. However, given the countless queries I have received this year from confounded landlords; I wanted to write an opinion piece commenting on landlords insurance from a property managers perspective. I will try to demystify why we advise you to insure, how much it costs, and the reasons why the costs vary from policy to policy, as brightly as possible (as I know the topic of insurance often has a sedating effect on people).
First, and most fundamentally, I can already hear you asking: Why do I need landlords insurance Michael?
There are a number of lesser known reasons why you should ALWAYS have landlords insurance (LI):
- Most landlords insurance policies come with a public liability cover as standard. Under the RTRA Act a landlord must hold a public liability insurance policy for its property which insures your legal liability as the landlord and owner of the property for death or bodily injury to other people or damage to other people’s property. For example a person trips on a rotten timber stair tread and becomes injured. Often standard building insurance policies do not provide this cover.
- Some LI policies will insure your contents or fixtures and fittings in the property which are not covered by the building cover (eg window furnishings are often not covered by building insurance policies in a body corporate arrangement and so the landlords insurance policy will cover these items in the case of an insured event occurring).
- It is a tax deductible expense. Personally I hate being advised this is a reason to spend money as it is, in my opinion at least, always better to avoid spending money where possible. It does bear noting none the less.
With the above in mind we come to the key function of a LI policy: to protect you against issues or losses arising from your tenancy agreement. A high performing LI insurance policy will insure you in the event of:
- Rent arrears (in its varied forms),
- The death of a tenant or it’s abandonment of the property,
- Accidental, pet and malicious damage to the property by the tenant,
- Failure of the tenant to return keys,
- Removal of rubbish or items left in the property by the tenant,
- Legal expenses and representation costs,
- Re-letting expenses in excess of the bond,
- Tax audit costs,
- Financial hardship losses,
- Untenantable property due to tenant damage or building damage,
- Prevention of access etc.
At this point I invariably get asked; if you manage my property well like you promise, wouldn’t the need for the above be negligible? The simple answer is no, issues will always arise and often is the case that we don’t see it coming. The example I like to use to explain this response is I, as a very experienced property manager, installed a tenant into a property my partner and I owned in Surfers Paradise in 2015. The tenant was a single female, with an income of over $100K PA, great rental references, over $30K in savings and a joy to deal with. She performed perfectly for years and then one Sunday afternoon I received a call from the local police station to advise me my tenant had suicided in the property. Most unfortunately she was not found for some time and the suicide has caused extensive damage to the property and the neighbouring units. Between the damage and the time taken to sort the various issues out the total cost we incurred was nearly $27,000.00. Now, the positive news is that because I had a Terri Scheer LI policy over $20K of the costs were covered under the death of a sole tenant provision. What I like to point out is that there were no red flags or assumed risks with this tenant, these costs could not have been predicted and so you should never attempt to predict the future and think that you don’t need this cover.
At the end of the day, how much is it worth to have the peace of mind afforded by knowing that you don’t need to stress about the unforeseen or unlikely? In my mind a great deal.
But how much does it cost?
Landlords insurance varies drastically from insurer to insurer and policy to policy. Typically it will cost between $150 for a very basic policy to $425 pa for a comprehensive policy. As with car insurance policies the most comprehensive policies cost more but also provide vastly better protection. Should you scrimp on a LI policy? Of course not, as explained by my scenario above. I cannot tell you how many times I have had to commiserate with a client that felt ripped off when the time came to claim on a cheaper policy and very little of the claim was accepted. I would strongly suggest comparing the levels of cover provided by different policies when you are considering options as you will see that the cheaper policies will only cover you for a few of the above events, typically only rent arrears and malicious damage.
But who should I get quotes from?
I strongly recommend getting as many quotes as you have time to as you will start to see the difference in what each policy covers. In my experience (and remembering I am not providing insurance advice I am just providing an opinion piece) there are three tiers of cover at different price brackets:
Most comprehensive: Terri Scheer (TS). TS provides the most cover to my knowledge, and has a fantastic claims process. Yes, sometimes it is difficult to get through to them and sometimes they ask for a lot of documentation but I would say the same is true for all the insurers I have dealt with. The downside is that you will pay the most for this policy at around $350 – $400 pa.
Medium cover: AON. AON is a great policy for the price at around $200 pa. However you will not receive as much cover and there is a chance that some or all of your claim would be declined if you chose this option. For example the types of events that, to my knowledge, are not covered by AON that would be covered by TS are: death of a sole tenant (see above scenario), representation costs, replacement of locks if tenants don’t return keys, reletting expenses in excess of the bond, water charges in excess of the bond, arrears due to financial hardship, prevention of access by tenant, and reduced cover limits for things like rent arrears (TS covers 20 weeks where AON covers 15 weeks for in the case of abandonment) etc.
Basic cover: AAMI, Suncorp, Budget Direct etc. These policies will cost between $100-$150 approximately and will generally only provide cover against rent arrears and perhaps a few other very limited issues. We strongly recommend paying a little more and getting much more cover for obvious reasons.
So what have we learnt?
I hope that after reading this rather verbose article we all agree that the wisest choice is to go with the best cover if for nothing else then the peace of mind this provides. However I know that this is such a complicated decision and I truely believe that insurance companies make it this way intentionally to make it hard to compare apples with apples. In fact when I was fact checking what I wanted to write in this article I spoke to Terri Scheer, AON and a few other insurers and I found it very difficult to get straight answers. So being slightly confused with this is totally normal and to be expected. If you are still stuck, please feel free to get in contact and we can try to clarify things for you. Alternatively each of the insurers have a call centre you can query, and they may be able to assist when you are organising your quotes.
Thanks for reading and talk soon!
Michael Elder-Mitchell – GM Estate Agents.