There are plenty of misconceptions floating about concerning landlord insurance. Here are five common ones doing the rounds. Read on to sort the fact from fiction…
Ever wondered where some of the ‘facts’ about landlord insurance have come from? So do we! Sometimes we are left scratching our heads about some of the misconceptions we hear, but when we start to hear the same oddities more frequently, we know it’s time to set the record straight. Let’s look at these five:
Insurance policies need to run in line with a tenancy cycle.
If a landlord thinks they only need insurance when they have a tenant in their rental, they best have another think!
Yes, many of the most common risks that landlords face and insure against occur when they have a tenant in the property, like accidental damage or loss of rent. But there are other risks that landlord insurance covers that aren’t tenant-related. Risks like damage from perils like fire, storm, flood, cyclone, theft or impact. These can occur at any time, whether a tenant is in occupancy or not. And if a landlord waits to take out cover when they have a tenant installed and one of these perils happens in the meantime, they will find themselves without cover and potentially face a huge damage bill (there have been far too many incidents when damage is so extensive that a total loss is incurred, such as fire razing a home).
And speaking of potentially life-shattering bills, there is also legal liability. Regardless of whether there is someone occupying a rental or not, the risk that someone could be injured or their property damaged when they are on the premises, still exists. Just think about it. What happens if a potential tenant comes to inspect the property and falls down the stairs because of a dodgy handrail? Or the agent you have checking in on the property has the carport fall on their car? Or the electrician repairing the wiring comes a cropper off the roof because they weren’t told the tiles were in bad repair? Or the meter reader slips over on a wet verandah? As the owner, you can be held liable for their losses. And liability claims can stretch into hundreds of thousands of dollars (sometimes, millions!).
To be protected, a landlord needs to have insurance cover in place from the day they become the owner of the investment property until the day they cease being the owner. Taking out insurance to coincide with the tenancy cycle is simply too fraught.
There is no cover while the property is between tenancies.
Is a rental covered by insurance if it is vacant or not? It depends.
So long as a valid policy (e.g. one that is paid and in-date) is in place, the premises are generally protected between tenancies (between the time that one tenant moves out and another moves in). But it is important to know what the property is protected against. For example, if there are no tenants, the property is not covered for tenant-related matters like loss of rent or tenant damage (for these to be covered, there needs to be a tenancy agreement in place, so if you have family or friends staying at the property without a lease such losses are not covered). This doesn’t mean the landlord can’t lodge a claim for such losses incurred because of the previous tenant (e.g. breaks lease and owes rent or has damaged the property) though.
Landlord policies also do not offer cover for market conditions, so if the landlord cannot secure a new tenant they cannot claim for loss of rent.
Depending on the type of cover in place, the property would be covered against other insured events like weather, fire or malicious damage. When it comes to protection against theft, cover may be conditional on having installed specific burglary prevention measures.
NOTE: There’s a difference between the property being unoccupied between tenancies and the property being vacant for an extended period. Once a property is vacant for longer than a prescribed duration (at EBM RentCover this is 90 consecutive days), the policy can be void. Vacant properties present several risks for insurers (including greater risk of squatters, theft, vandalism, or preventable damage such as from burst pipes), which is why they often won’t provide cover. Generally, if the insurer agrees to continue cover for a vacant property, a higher excess will be applied and some restrictions on coverage might be imposed.
When a property sells, the insurance policy is transferred to the new owner.
If the ownership of a property changes, the title deed gets transferred into the new owner’s name – the insurance on the property does not.
Insurance is a legally binding contract between two parties – the insured/policyholder (e.g. the landlord/owner) and the insurer (e.g. QBE which underwrites EBM RentCover policies). Once the policyholder is no longer the owner, the insurance is void (you cannot insure property you do not legally own). Landlord insurance cannot be transferred from one owner to the next, as the contract exists between signatories to the insurance policy and no-one else.
When the investment property sells or changes ownership, the owner/landlord or their agent needs to cancel the existing landlord insurance policy. The insurance provider will notify the policyholder of the date from which cover is no longer applicable.
If the new owner wants insurance, they need to apply for their own cover (which can often be arranged through their agent or direct with an insurance provider like us) and their insurer needs to agree to cover them and their property. The new owner enters a legally binding contract with their insurer which remains in place until the contract/policy is cancelled. New owners should ensure that they arrange cover as soon as practicable so that the property remains protected (this is particularly important in terms of having legal liability cover in case someone is injured on the premises). It should be noted that there is no guarantee that an insurer will agree to cover the new owner or offer the same policy as the one the previous owner had (this is especially the case in light of the changes that have occurred to the landlord insurance industry as a result of COVID-19).
Pets must be named on the lease.
Cover for pet damage in landlord insurance policies is not standard, in fact, not that many insurance providers offer the cover. And for a number of those that do, the conditions can be a tad onerous.
At EBM RentCover we not only offer cover for domestic pet damage (up to $65,000) in all landlord policies except Householders Rental, we don’t impose restrictive conditions.
While the pet must be owned by the tenant, we don’t need the pet to be named on the lease. This gives landlords peace of mind in knowing that, if their tenant’s pet damages the rental and the tenant doesn’t make good, their insurance will – whether they knew there was a pet living at the premises or not.
There aren’t any extra inspection requirements attached to this cover either. Landlords or their agents just need to inspect the property within six months of the initial lease and then at least annually thereafter.
Rent default is off the table.
Okay, COVID-19 has turned the landlord insurance industry on its head. Like other impacted businesses, insurers have had to adapt. For most, this meant re-evaluating the policies they offered to ensure they could continue to protect their existing policyholders and safeguard the sustainability of their business. For some, this meant not offering cover at all anymore, for others, there were changes in the risks they were prepared to cover. In light of the economic fallout and the government-imposed moratorium on evictions, cover for rent default was almost universally halted.
But – and it’s a big one – for those landlords who already have a policy that includes rent default, it is likely that they will be covered for losses sustained. That is the case for EBM RentCover policyholders. Our policyholders have been able to renew their policies and retain the existing loss of rent provisions including rent default. In addition, landlords who don’t already have cover with us, and are clients of our agent partners, may be able to access rent default – landlords should chat to their property manager to find out more.