Why You’d Be Crazy Not to Have Landlord Insurance (Plus What It Does and Doesn’t Cover)

Introduction

If you’re an Australian landlord, you may be wondering if landlord insurance is worth it—especially since it’s not technically required by law. But here’s a little-known fact: many property management agencies will insist on it and might even refuse to manage your property if you don’t have it. Why? Because they know first hand the kinds of issues that can come up. Landlord insurance isn’t just another expense; it’s a must-have safety net that protects both your investment and your income when the unexpected happens.

In this blog, we’ll walk you through why landlord insurance is essential and why you’d be taking a serious risk without it. Plus, we’ll clear up a few big questions:

What Does Landlord Insurance Actually Cover?

Does landlord insurance cover my tenants’ stuff?

The bond will cover everything, RIGHT?

What exactly is Malicious Damage?

What Does Landlord Insurance Actually Cover?

Landlord insurance goes beyond your standard home insurance. It’s designed to protect you specifically as a landlord. Think of it as a cushion between you and the unexpected (and often expensive) risks that come with renting out property. Here’s what it typically covers:

1. Tenant-Related Damage
   Picture this: your tenants throw a party that gets out of hand, or they have kids who treat your walls like a canvas. Standard home insurance won’t cover tenant-related damage, but landlord insurance will. It covers you for damage caused by tenants, saving you from footing a hefty repair bill.
2. Loss of Rent
   Imagine your tenant suddenly stops paying rent, skips town, or a disaster like a fire leaves your property uninhabitable. Landlord insurance can cover your lost rental income until the situation is resolved. Without it, you’d be left without income and with a damaged property—double trouble.
3. Public Liability
   Let’s say a tenant or their guest gets injured on your property, like stumbling on uneven paving stones in the garden or getting hurt from a faulty balcony railing that wasn’t picked up by your property manager during a routine inspection and went unreported by the tenant. If they decide to sue, your landlord insurance has you covered for legal costs and damages. These types of claims can get very expensive, very quickly, so this coverage is a lifesaver.

A Few “What If?” Examples to Consider

• What if... a tenant leaves in the middle of the night without notice?
  You’ve got a vacant property, no rent, and probably a mess to clean up. With landlord insurance, you can get back some of that lost rent while finding a new tenant.
• What if... your tenant’s pet gets a little too “creative” with your carpet?
  Pet damage can get messy. Landlord insurance often offers additional coverage for pet-related damages, saving you from pet surprises on your floors, walls and doors.
• What if... a tenant refuses to leave and you need to evict them?
  Evictions can take time and money. Some policies will cover the costs associated with eviction, helping you through a stressful process without emptying your bank account.

 What Landlord Insurance Typically Won’t Cover

Yes, there are a few key areas that landlord insurance typically does not cover. Here are some common exclusions landlords should be aware of:

1. Tenant’s Personal Belongings
   As covered in your blog, landlord insurance doesn’t cover tenants' belongings, like furniture, electronics, or other personal items. Tenants need their own contents insurance for that.
2. General Wear and Tear
   Standard wear and tear, like faded paint, worn-out carpets, or minor scuffs, is usually not covered. Landlord insurance covers unexpected damage, not gradual deterioration from regular use.
3. Maintenance Issues and Neglect
   Landlord insurance doesn’t cover damage from poor property maintenance or neglect. Issues like mould, rust, and water damage from unresolved leaks are the landlord’s responsibility to manage through regular upkeep.
4. Certain Types of Natural Disasters
   Coverage for natural disasters can vary depending on the insurer and the policy. Events like floods, earthquakes, or bushfires may require additional coverage or could be excluded altogether, so it’s important to review what’s included.
5. Unlawful or Intentional Acts by the Landlord
   Any damage that results from the landlord’s own unlawful acts, intentional harm, or negligence won’t be covered. For example, if a landlord enters the property illegally or damages the tenant’s belongings, insurance won’t cover resulting claims.
6. Vacancy-Related Issues
   If the property is left vacant for an extended period (often 30-60 days, depending on the policy), coverage may be limited or voided for issues like vandalism or damage. Many policies have restrictions on unoccupied properties, so landlords should check these details.
7. Damage from Unapproved Tenants
   If there’s damage caused by someone living in the property without the landlord’s approval (like a sublet), this might not be covered. Policies can sometimes exclude unauthorised occupants, making it important for landlords to have clear lease terms. 

Does My Landlord Insurance Cover My Tenant’s Stuff?

Nope. A common misconception is that landlord insurance covers a tenant’s personal belongings—but it doesn’t. Landlord insurance protects your property and things like flooring or fixtures if they’re damaged, but it won’t cover your tenant’s items. If a tenant’s TV, laptop, or other belongings are stolen or damaged, they’re responsible for that. Encourage your tenants to get their own contents insurance to protect their valuables, furniture, and personal items.

The Bond Won’t Always Cover Everything

While a tenant’s bond can help cover some damages or unpaid rent, it often won’t come close to covering the full out-of-pocket expenses you could face. Repairs for property damage, lost rent, or even legal costs can quickly add up to far more than the bond amount. This is where landlord insurance comes in as a crucial safety net, ensuring you’re not left with a financial burden when costs exceed the bond.

Understanding Malicious Damage Coverage

One type of coverage you’ll likely see included in landlord insurance is for malicious damage. This refers to intentional harm done to your property, like vandalism or purposeful destruction caused by a tenant. However, keep in mind that for a claim to be approved, you’ll need to prove that the damage was deliberate and not just accidental or due to general negligence.

For example, I once did an independent exit inspection on behalf of a landlord who needed evidence for an insurance claim. Her tenant had used the carpet beside their bed in the master bedroom to put out cigarette butts, causing multiple burn marks. When they tried to claim it as malicious damage, the insurance company refused to pay, arguing that the damage didn’t meet their standard of “malicious.” They deemed it more as negligence or a bad habit rather than intentional vandalism. This example highlights how essential it is to understand exactly what a policy considers “malicious” and to ensure you have the evidence needed to support your claim – which in my opinion, is not easy to prove!!

Don’t Just Settle—Shop Around for the Right Policy

Not all landlord insurance policies are created equal. Some might offer more comprehensive coverage for tenant-related damage, while others could have better options for covering loss of rent or public liability. Take the time to compare different providers and read the fine print carefully. A policy that’s a perfect fit for one landlord might not cover what you need most, so shop around to find the best policy fit for your specific property and situation. For example, if your property is located in a higher crime or low socio-economic area, you may want a policy with stronger coverage for tenant-related damage or loss of rent. Every property has unique needs, so it’s worth comparing options to find the best fit.

Best Practice = Get the Insurance!

Even though landlord insurance isn’t a legal must-have, going without it can leave you vulnerable to some serious headaches and unexpected out-of-pocket expenses.

By protecting your property and income, landlord insurance is one of the smartest investments you can make as a landlord. It keeps you covered when the unexpected happens.

So, do yourself a favour—get the insurance! You’ll thank yourself later when you’re covered for the risks that come with renting, and you can sleep easier knowing your investment is protected.

Happy Landlording!!!