What Your Rental Property Insurance Might Not Be Covering

Many landlords assume that if their tenant can’t (or won’t) pay rent, their policy will pick up the slack. Unfortunately, that’s not always the case.

Many policies only cover loss of rent when it’s the result of an insured event like a fire, flood, or storm damage. But if your tenant abandons the property, suddenly moves out without notice, or simply stops paying, you might not be covered — unless you’ve chosen this as an optional extra.

And here’s another curveball — even when you do have loss of rent cover, there’s often a cap. Many policies limit the payout to around $40,000 a year. That sounds like a lot, but if your property commands a higher annual rent you may need to increase your loss of rent coverage so that you don’t find yourself underinsured.

Trudy advises a recent claim where a tenant vacated the rental property without providing any notice, leaving the landlord unable to contact them. The property remained vacant for several weeks while the landlord searched for new tenants.

Had this Insured not taken the Landlords Extension cover the loss of rents claim would have been denied because –

• There was no malicious damage rendering the property uninhabitable.

• There was no physical damage causing loss of use.
• Without physical damage or malicious damage, the policy did not cover the loss of rent.

This is a big one. Some policies cover accidental damage — think a wine glass smashing a benchtop or a kid knocking over a TV — but not intentional acts, like if a tenant intentionally punches holes in walls or hosts an illegal activity that causes damage.

Without malicious damage cover, you could be left paying for costly repairs yourself. The right policy will include this protection, but it’s something you need to discuss upfront.

If your rental is furnished — even partially — it’s worth checking that those items are covered – appliances, furniture, whiteware. Standard home insurance may not cover landlord-specific risks — especially if the property is vacant or leased.

And here’s a lesser-known detail: some policies change cover if the property is vacant for a certain period. If you’ve got a gap between tenants, you could be at risk without even realising it.

Property values change. So do rebuild costs. Inflation, renovations, and even tenancy law changes can all alter the level of risk you’re carrying as a landlord. If your cover hasn’t been reviewed in a few years, you could be paying for more than you need — or not enough to protect yourself.

A quick check-in once a year can make all the difference in making sure your insurance reflects the real-world value of your property and your exposure as a landlord.

Are you aware that you, or the person who manages the tenancy on your behalf, has obligations that need to be met and if these are not met a claim can be denied. Each Insurer has different landlord’s obligations but below is the common items:

• exercise reasonable care in the selection of tenant(s) by at least obtaining satisfactory written or verbal references, and
• complete an internal and external inspection of the property at a minimum of 3 monthly intervals and upon every change of tenant(s), and
• keep a written record of the outcome of each inspection, and provide a copy of the record if Insurers request it,

If you own one or more rental properties, your insurance shouldn’t be something you “set and forget.” It’s worth having a trusted adviser review your policy with you to make sure you’re protected against the scenarios that can actually happen — not just the ones in the brochure.

Because when it comes to being a landlord, peace of mind is worth its weight in gold