Five insurance terms to know

There are lots of words and terms used in insurance documents that have specific meanings, and here we are taking a dive into five essentials for landlords to make sure they know and understand…

Product Disclosure Statement (PDS)

The PDS is a document that contains details – the fine print – about the insurance product.

An important legal document, the PDS contains all the information about the insurance policy, including your rights and obligations in relation to the insurance, such as the cooling off period and the duty of disclosure. Your PDS tells you what you are and are not covered for under the specific policy. It highlights things such as your policy’s key features, insured events, claim limits, exclusions, benefits, claims information, and the insurer’s complaints handling procedures.

The PDS for each landlord insurance product EBM RentCover offers is available here. A copy of the PDS is also provided to policyholders when they purchase a policy. When updates to the PDS are made, policyholders are notified, and the website is updated.

As a landlord, it is important for you to read and understand the PDS so you can determine which cover is right for you.

Liability

Owning any property, including a rental, exposes the owner to liability risks. Owners have a duty of care to ensure that anyone entering their premises or who is on their property is kept reasonably safe from foreseeable harm.

If they fail in their duty and a tenant or guest is injured, or has their personal property damaged while they are on the premises, the landlord may be held legally liable. If the reason for the injury or loss can be attributed to the landlord, then the landlord is likely to be responsible for compensating them for that loss.

Legal liability claims can stretch from a few hundred dollars to hundreds of thousands, even millions, of dollars, depending on the nature of the loss and the landlord’s role in it.

Having legal liability cover within a landlord insurance policy protects the landlord against claims of negligence in their duty of care. As a landlord, it is important for you to understand your legal obligations in terms of liability so you can ensure that your insurance policy provides adequate cover.

Insured events

Landlord insurance policies cover risks most likely to occur and expose a landlord to financial outlay – property damage from wild weather, damage caused by tenants, theft, unpaid rent and the like.

The risks covered are defined within an insurance policy as ‘insured events’. All other ‘events’ are typically excluded from cover.

What insured events are covered varies by insurer, but EBM RentCover policies generally include cover for damage or loss caused by: 

• fire; 

• storm; 

• lightning or thunderbolt; 

• natural disasters (like cyclones, floods, bushfires, tsunami, or earthquakes); 

• theft or attempted theft; 

• malicious acts such as vandalism; 

• escaping liquid; 

• impact such as by a fallen tree or vehicle collision; 

• glass breakage; 

• electric motor fusion; 

• accidental, deliberate or malicious damage by tenants (or their guests); and 

• pet damage; 

Full details of coverage for insured events will be outlined in the PDS. The PDS will include the events covered, along with any limitations and exclusions.

As a landlord, it is important for you to know what events are insured, and which events are not, so you don’t mistakenly think you are covered for an event for which you are not and suffer an unexpected financial burden.

Premium

The premium is the amount you pay for your insurance policy. It is the amount of money you pay to an insurer to take on the risk of protecting your investment property against a range of insured events.

The price of your landlord insurance premium depends on a variety of factors, which may include, depending on the type of policy chosen, the property address, natural disaster risk (e.g. cyclone, floods, bushfire), sums insured, and the age and condition of the structure.

As a landlord, it is important that you understand how various factors influence the premium paid, and also the consequences of not adequately insuring the rental or letting a policy lapse altogether.

Underinsurance

Underinsurance can also be a scary prospect for landlords. Underinsurance happens when the policyholder has insurance, but the limits of the policy are not enough to cover the cost of loss or damage to the property. Simply put, ‘underinsurance is when you don’t have enough insurance to cover the replacement value of the items you are insuring’, according to the Insurance Council of Australia which also suggests that a property is underinsured if an insurance policy covers 90 per cent or less of the rebuilding costs.

Being underinsured can have a devastating impact on landlords, especially in cases of total loss. A landlord may find they simply do not have enough funds available to restore their rental after an insured event – leaving them without an investment property and its income, and their tenants without a home.

Many landlords who find themselves underinsured have simply not properly calculated the current replacement value of their investment property. Miscalculating the true replacement value leads to inaccurate sums insured being nominated, and the property being insured for an incorrect value. For others, underinsurance can be an attempt to save on the premium – but that can be a risky and false economy if disaster strikes.

As a landlord, it is important you understand the risks associated with underinsurance and how to reduce the risk of falling victim.

That’s our top five key insurance terms every landlord should know. If you have any questions about these or anything else ‘insurance’, please get in touch with a member of our Expert Care team for guidance.