Is Landlord Insurance Expensive? 

Blog

October 31, 2024

Protecting your investment property is crucial, and landlord insurance is vital in safeguarding your rental income and property. But how much does it cost? And is it worth getting? Let’s explore the world of landlord insurance to help you make an informed decision. 

What is Landlord Insurance? 

Landlord insurance is a specialised type of coverage designed for property owners who rent out their properties. Unlike home insurance, it addresses the unique risks associated with rental properties. These include the following: 

  • Legal costs involving tenant disputes 
  • Loss of rental income 
  • Coverage for the building and other connected structures 
  • Damages caused by tenants 
  • Ensures a stable income even when the property is undergoing repair or rent is unpaid  

It essentially provides a cushion for any unexpected and unique problems a landlord can face. 

Factors Affecting Landlord Insurance Costs 

Several factors influence the cost of landlord insurance, such as: 

  • Property location and type: Properties in high-risk areas (e.g., flood-prone or high-crime zones) often have higher premiums. 
  • Level of coverage: More comprehensive policies cost more but offer better protection. 
  • Claims history: A history of frequent claims may increase your premiums. 
  • Rental income and occupancy rate: Higher rental income and consistent occupancy can affect your coverage needs and costs. 

Is Landlord Insurance Worth the Cost? 

At first glance, landlord insurance might seem like an optional added expense. The average price for a policy in Australia isn’t insignificant (the number may vary depending on the factors discussed above). However, it’s crucial to view this expense in the context of your overall investment. 

As of April 2024, the median dwelling value in Australia was $779,819. Your annual landlord insurance premium typically represents less than 0.3% of your property’s value. This relatively small percentage provides protection against potentially significant financial losses. 

Let’s put it into perspective. Imagine a scenario where your tenant accidentally causes a kitchen fire, resulting in $50,000 worth of damage.  

Without insurance, you’d be facing this substantial repair bill out of pocket—not to mention the loss of rental income while the property is uninhabitable. Suddenly, that annual premium doesn’t seem so steep. 

While hopefully rare, these situations can be financially devastating when they occur. The peace of mind that comes from knowing your investments are protected against such events is invaluable. 

The upfront cost of landlord insurance might seem high, but weighing this against the potential financial risks of being uninsured is essential. Think of it as a buffer for your investment, protecting not just your property but also your financial future. 

Jared’s Landlord Insurance Purchasing Experience 

To put into perspective of someone purchasing landlord insurance and what to expect, let’s take a look at Jared’s scenario. 

Jared, a property investor in Queensland, purchased a two-bedroom apartment to rent out. To protect his investment, he diligently researched landlord insurance policies from five different insurers, carefully comparing the coverage and price of each option. After thorough consideration, Jared decided on a mid-range policy with an annual premium of $2,200 and a $500 excess. 

Fast-forward six months into his journey as a landlord, and an unexpected incident occurs. Jared’s tenant accidentally caused significant water damage to the property, resulting in repair costs of $8,000. Fortunately, his landlord insurance policy proved its worth. The insurance company covered $7,500 of the repair costs, with Jared only having to pay her $500 excess. 

Without the policy in place, Jared would have faced a substantial financial setback, as the entire $8,000 repair bill would have come out of his own pocket. This would have had a significant impact on his rental income, potentially jeopardising his investment strategy. 

Jared’s story serves as an example of how landlord insurance can provide crucial protection against unexpected costs. The annual premium—which may initially seem like an additional expense—can be a worthwhile investment in protecting your property and financial well-being as a landlord. 

How Are Premiums Calculated? 

Insurance companies use complex algorithms to assess risk and calculate premiums. The calculation of landlord insurance premiums involves several key factors: 

Risk Assessment 

Insurers assess the level of risk associated with your property, considering location-specific risks like natural disasters or crime rates, as well as property type and building materials. Properties in high-risk areas or those made of materials more susceptible to damage may attract higher premiums. 

Coverage Level 

The extent of coverage you choose significantly impacts your premium. Building cover, which accounts for the cost to repair or rebuild your property, is a crucial factor.  

Contrary to common belief, the sale price of a property is less relevant to insurers than the potential repair or rebuild costs. For insuring furnished properties, the value and type of contents will also affect your premium.  

Opting for extra protections like rent default cover or legal expense coverage will increase your premium. 

Excess Amount 

The excess, which is the amount you agree to pay out of pocket when making a claim, also plays a role in premium calculation. Choosing a higher excess can lower your ongoing insurance costs. Excess amounts for landlord insurance can vary widely, from $100 to as much as $10,000. 

Occupancy Factors 

Occupancy factors, such as tenant type (long-term vs. short-term rentals) and occupancy rate, can also influence premiums. Short-term rentals and properties that are frequently vacant may be seen as higher risk. 

Claims History 

Your history of making insurance claims is another factor that can impact your premium. A history of frequent claims may lead to higher premiums, while some insurers offer no-claim bonuses or discounts for claim-free periods. 

Security Measures 

Implementing security features like locks and alarm systems may make you eligible for discounts and potentially lower your premium. 

Market Conditions and Government Charges 

Broader market factors, such as reinsurance costs, inflation, and changes in the insurance market, can affect premium rates across the board. Additionally, government charges such as Stamp Duty, GST, and Emergency Services Levies (where applicable) are factored into the final premium cost. 

When Should I Get Landlord Insurance? 

Timing is important when it comes to landlord insurance. Here are some moments of when you should consider obtaining or reviewing your landlord insurance: 

  1. Before tenants move in: Ideally, investors should have landlord insurance before their tenants occupy the property. This ensures they are protected from the start of their rental journey. 
  1. When purchasing a new investment property: If you intend to rent the property out, arrange landlord insurance to coincide with the settlement date. 
  1. Transitioning from owner-occupied to rental: If you were to convert your primary residence into a rental property, make sure you have landlord insurance before tenants move in. 
  1. Annual review: Even if you already have landlord insurance, review your policy annually to ensure it meets your needs and offers competitive pricing. 
  1. Change in property use: Should you switch from long-term to short-term rentals (or vice versa), review your policy as your insurance needs may change. 
  1. After significant renovations: Major improvements to your property may increase its value or attractiveness to tenants, potentially affecting your insurance needs. 
  1. Change in legislation: Stay informed about changes in rental laws or insurance regulations that might affect your coverage requirements. 

If you need an accurate and professional valuation done for your property, don’t hesitate to get a quote from Duo Insurance. 

Key Takeaways 

  • Landlord insurance is a specialised form of coverage for rental property owners. 
  • The cost of premiums varies widely based on factors such as property location, type, and level of coverage. 
  • You can manage costs by shopping around, increasing your excess, and implementing security measures. 
  • Obtain landlord insurance before tenants move in, when purchasing a new investment property, or when converting your home to a rental. 
  • Review your policy annually and after any significant changes to your property or its use. 

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