Landlords: safeguard your rental investment!

The importance of landlord insurance cannot be over-stressed to protect your rental income and property. You have likely invested a considerable sum in buying and maintaining your rental property. You have sought and found what you consider to be the perfect tenant, and everything is going smoothly… that is until one month the tenant skips a rental payment. This can be the start of things spiraling out of control. Even if you agree that the tenant can pay off the skipped month, the red flag indicates that they are under financial pressure, and this could happen again.

Another scenario is that the property is damaged, such as by fire, a lightning strike, vandalism, or tenant behavior. These incidents, plus the loss of rental income if your property needs to be vacant during repairs, can be expensive. The solution is landlord insurance, which is not the same as homeowner’s or building insurance. It serves to protect landlords financially if something goes wrong.

What landlord insurance covers

• Defaults on the lease agreement by tenants, illegal tenants, and rental defaults.
• Loss of income due to tenant rental defaults.
• Costs of obtaining an eviction notice can also be included.
• Loss of earnings if damage is caused by a tenant intentionally, or by incidents such as fire or extreme weather.
• Some policies cover public liability if someone, including the tenant, is injured on your property.
• Protection of the physical structure of your rental property.

Add-ons to the policy

Landlord insurance can be expanded, with options such as:

• Coverage for tenant possessions (though it’s advised to encourage tenants to insure their own possessions).
• Vandalism coverage.
• Theft coverage.

Reasons to have landlord insurance

While it is not a legal requirement, landlord insurance adds an extra layer of protection against unexpected costs associated with rental properties. Some home loan providers may even insist on it.

If a tenant stops paying rent and an eviction is needed, the process can be long and costly. This means landlords could miss out on rental income, which can strain the ability to pay a home loan. For landlords with multiple properties, landlord insurance reduces the risk of financial pressure if issues arise across multiple rentals.

A multiple-property landlord insurance policy is an option, offering a unified policy for all properties. This is often more cost-effective and simplifies the process by consolidating monthly payments to one insurer.

Factors affecting landlord insurance costs

The cost of landlord insurance varies, but common factors include:

• Location of the property.
• Extent of coverage required.
• Property’s exposure to regular occurrences of crime or weather incidents.
• Some insurers offer a fixed monthly fee, regardless of rent income, location, or other circumstances. Others set the premium at a percentage of the monthly rental amount.

Notable conditions

Check the terms and conditions:

• Note when the policy kicks in. Some insurers require a tenant to have lived on the property for three months before a claim can be made.
• Some insurers will only pay out if the tenant has skipped payments for two or more months, not the first month.
• Check the extent of insurance protection of the property. You may need enough to fully cover a total loss.
• Ensure the policy does not specify tenant type and associated risk, as some may consider certain tenants (e.g., students) higher risk than stable-income tenants.
• Note if the policy specifies lease duration. Short-term leases pose higher risks due to tenant turnover.
• Watch out for exclusions, as some policies may exclude tenant-caused damage.

Annual review

It is important to review your landlord policy annually. If market conditions change or you make improvements to your rental, revising coverage limits may be necessary.

Maintaining your property and responding quickly to repairs may even make you eligible for premium discounts over time. Keep in mind that landlord insurance is a niche product, covering unique rental property risks. Carefully compare quotes, read fine print, and stay protected to avoid financial setbacks.