If you have a rental property, getting the right insurance policy is essential to ensure that you have the coverage you need.
Standard house insurance is not enough to cover the additional risks that come hand in hand with renting out a property. This is where landlord insurance comes in.
This article will answer all of your questions about landlord insurance, from what it covers, how to get it, and how much it costs.
What is Landlord Insurance?
Landlord insurance is effectively a variation of house insurance that includes additional benefits such as protection against lost rental income, intentional damage by tenants, and liability.
If you are renting out your property to tenants but only have a standard house insurance policy, you may not be covered for certain situations. This could lead you liable for tens of thousands of dollars in uncovered expenses.
For example, if a fire or natural disaster leaves the property uninhabitable, the house may be insured, but you may have to cover the alternative accommodation expenses for displaced tenants, not to mention lost rent.
Do I need Landlord Insurance?
While landlord insurance isn’t compulsory, it is strongly recommended. As mentioned above, a standard house insurance policy is not enough if you are renting out your property. You could still be at risk for things like loss of rent, non-accidental damage to the property, and liability if a tenant suffers an injury on the property.
Given that many landlords depend on their rental income for their livelihood, it is important to protect it from unforeseen circumstances. This is especially relevant in New Zealand where natural disasters that cause damage to property are relatively common.
There are many advantages to landlord insurance that make it an essential purchase if you’re renting out a property. Keep reading to find out exactly what it covers.
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What Does Landlord Insurance Cover?
Landlord insurance varies depending on the provider, but there are a few fundamental aspects that are central to most policies.
Repair or Rebuild
As per standard house insurance policies, coverage for repair or rebuild in the event of accidental damage, fire or natural disaster is included in landlord policies. (Be sure to calculate the actual cost of rebuild for your property when deciding on the sum insured value, rather than estimating or using the price of purchase. There are numerous online calculators for this purpose.)
Loss of Rent
Loss of rent covers landlords if a tenant leaves without providing a notice period, the property is uninhabitable due to accidental damage or natural hazard, and sometimes for a period of time between tenancies. This is something that varies between policies, but if it is included, it will generally be capped at an equivalent of 12 months’ rent. Loss of rent is particularly important in the event of a natural hazard where repair or rebuild could be up to, or even more than, 12 months.
Contents
Not to be confused with the tenants’ personal possessions, the contents component of landlord insurance covers the contents that the landlord owns. This may include the oven, any furniture that the landlord has supplied, and fixtures such as lampshades.
Intentional Damage
Intentional or malicious damage to the property by tenants is an important component of landlord insurance. Unfortunately, this kind of damage does happen, especially during evictions. But it’s important to note that landlord insurance may not cover intentional damage by someone other than a tenant.
Legal Liability
Legal liability is the component of a landlord insurance policy that covers the landlord for any injury or property damage to a third party as a result of landlord negligence. This cover typically ranges from $1 million to $20 million.
Methamphetamine Contamination
If the tenants use the property as a methamphetamine lab, landlord insurance will cover the clean-up and decontamination costs.
What Isn’t Covered by Landlord Insurance?
While the above list is reassuring, there are some aspects to renting out a property that landlords have to take on the chin.
For example:
Mould, Rot and Damage from Slow Leaks
For the most part, anything that would be considered general wear and tear, or damage that has occurred slowly over time and could have been caught and remedied sooner, isn’t covered by landlord insurance. This includes damage that has resulted from poor maintenance or a slow leak.
Clean up and Rubbish Removal at End of Tenancy
While it should be the tenants’ job to leave the property in the same condition in which they found it, many don’t. But unfortunately, landlord insurance doesn’t cover this aspect of the job. Any cleaning or removal or rubbish or broken furniture will need to be covered by the landlord or the tenants’ bond.
Loss of Rent
Most landlord insurance policies should cover loss of rent, but not all. This is something you should look for specifically. If it is included, you should check the limit, as it may not be enough to cover the full rent.
The Tenants’ Contents
Tenants are still required to have their own contents insurance policies if they want their possessions to be insured against damage, theft or loss due to fire or natural disaster. Landlord insurance does not cover the tenants’ possessions.
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How Much Does Landlord Insurance Cost?
The cost of landlord insurance varies by provider, but also by region. This is due to the increasing earthquake risk perceived to be associated with Wellington and Christchurch, and increasingly flood risk in Auckland, Napier, Palmerston North, Wellington and Christchurch.
You can find out whether your property is at risk for natural hazards such as floods through your city council. For example, Christchurch City Council provides district planning maps.
The table below gives an indication of annual landlord insurance costs from four major providers, based on a single story property in Epsom, Auckland.
Tower | $2,100 |
AA | $2,000 |
AMI | $1,700 |
Initio | $1,800 |
Please note that the inclusions and excesses may vary between policies. However, in general, we have found that Initio is usually 10-15% cheaper than other providers, so they are worth checking out at as a starting point before deciding which provider to go with.
How do I Get Landlord Insurance?
Landlord insurance can be purchased either through an insurance broker or online through direct insurance providers.
Some of the best insurance providers for landlord insurance are Initio, Tower, AA, AMI, State and AMP. All of these providers sell directly to the public and most can be purchased easily online. However, there are advantages to using a broker to help you find the right policy.
Landlord insurance policies vary hugely from provider to provider. Variations in premiums are to be expected, but there are also many differences in what the policy actually covers and what the limits are. There may also be inclusions that are optional rather than automatic, and therefore need to be specifically requested.
For example, coverage for fixtures and fittings may be optional, or available only under specific pre-defined circumstances. Loss of rent varies from 6 month to 12 month limits, and different companies require landlords to do inspections at different intervals - some request 3 month intervals while others only every 6 months.
FAQs
Do I need to provide tenants with a copy of my landlord insurance?
Landlords don’t need to routinely provide a copy of their insurance policy to tenants, however there must be a statement in the tenancy agreement stating whether or not the property is insured and if so, what the excesses are should the tenant be responsible for any accidental damage. Landlords must keep their insurance policy available should the tenants request to see it.
Can I deduct landlord insurance?
Insurance premiums for any policy relating directly to your rental property are tax deductible. This means that you can deduct your landlord insurance premium.
Are landlord insurance claims taxable?
Any money that a landlord receives in an insurance pay out relating to a rental property must be declared as a capital gain.
How can I reduce my landlord insurance premiums?
Shop around for the best policy and compare this price to the benefit you would get from having all of your policies under one provider. Increasing the excesses associated with your policy, or lowering the total cover would both result in lower premiums. However, these are trade-offs.
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