Do landlords need cover for tenant-related risks?

This may sound obvious, but properties can get damaged or be destroyed, whether from the wrath of Mother Nature or the actions of a person or an accident. There are risks – and insurance helps provide financial protection should those risks become realities.

When you own an investment property you typically need protection for insured events like fire, storm, cyclone, flood, theft and vandalism, impact, glass breakage, escape of water, electrical motor fusion and accidental damage. You also need protection for risks associated with having tenants. These risks generally fall under two categories – loss of rent, and damage (that’s damage caused by the tenant, not damage caused by an insured event like a fire or storm).

Did you know, loss of rent is the number one reason why landlords need to claim on their insurance? Each year, thousands of claims are made by landlords who have suffered financial losses because their tenants have failed to pay their rent. Thousands of claims are also paid each year following damage caused by tenants, their children, pets and guests. Most of these claims are for accidental damage, but there are also claims for intentional and malicious damage.

Despite these realities, there are some landlords who think they don’t need cover for tenant-related risks. The argument is usually that they have an incredibly reliable tenant – one who has lived at the property for years, never missed paying their rent and treats the property like it’s their own.

However, sadly, even the most reliable tenant can have something happen in their lives that can derail their best intentions and result in them not being able to pay their rent. Think job loss, relationship breakdown or illness.

Should a tenant not be able to pay their rent or cause damage to the property they can’t afford to repair, the landlord can be left out-of-pocket. And, without insurance that includes cover for tenant-related losses, they may not be compensated for those losses. If the tenant can’t pay, the landlord may have little option but to write-off the loss or pursue them through the courts – and that in itself can be expensive, time-consuming and risky.

IMPORTANT: Speaking of compensation, let’s quickly talk legal matters. If the landlord policy excludes cover for tenant-related losses, legal expenses relating to action to recover lost rent won’t be covered either. Without the right cover, this is another expense that comes out of the landlord’s pocket.

The claims data speaks for itself – tenant-related losses are the main reason landlords need to turn to their insurance. Life happens. Accidents happen. And even the very best tenants are not immune. Which is why the general rule is that a landlord needs cover for tenant-related losses.

We say the general rule because there are exceptions to every rule. In the case of landlord insurance, the exception can be in those very limited scenarios where a landlord may choose to forgo cover for tenant-related risks. It is usually when they are renting the property to a family member. Essentially, it’s in a rental situation where they are willing to take the financial risk should the tenant fail to pay or if they damage the property.

Even in these circumstances, a standard home and contents policy is not the answer. EBM RentCover offers the Householders Rental policy which is designed for this exact scenario. Householders Rental provides cover for insured events (such as fire, storm and flood) to contents (owned by the landlord) and the building (optional), but does not cover tenant-related loss and damage. It also provides legal liability cover in case the tenant or a visitor to the property is injured.

It’s what is not covered that’s the important bit here. There is no cover if a tenant defaults on their rent. There is no cover if the tenant (their children, pets or guests) damages the property. There also isn’t any cover for tenant theft or drug lab clean-up.

So, when it comes to landlord insurance, the answer to the question ‘do I need cover for tenant-related risks?’ is a resounding yes – with a little proviso. If you are certain you don’t need the cover, protect your investment with an alternative specialist landlord policy like Householders Rental.

Got questions? Chat to a member of our Expert Care team – 1800 661 662.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.