Domestic Landlord Insurance - What you need to know
Many purchasers of residential investment properties are also business owners who want to secure their future retirement. Every investment opportunity, however, comes with its own element of risk, which is where Domestic Landlord insurance comes into the picture. Let’s take a look at what this insurance covers and the key take-home messages you need to understand.
What does Domestic Landlord insurance cover?
All policies are different, but generally, Domestic Landlord insurance is very similar to your House and Contents insurance, except that it’s specifically designed for leased properties. It covers your rental property for fire, theft, storm damage and public liability. For example, if a tree falls on your rental property during a storm or a pipe bursts and floods the home, your Domestic Landlord insurance can cover these losses.
What are the key points of Domestic Landlord insurance?
It’s important to understand that not all Domestic Landlord insurance policies provide cover for loss of rental income. For example, if the property burns to the ground, your Domestic Landlord insurance will cover the building and contents, but not always your loss of rental income. This is something you must discuss with your insurance adviser to ensure that you have the cover you need to reduce your risks as much as possible. Specifically, you need to ask about Loss of Rent cover on your policy.
Another key point is that if a tenant refuses to pay their rent, this loss may not be covered by your Domestic Landlord insurance or Loss of Rent cover. Also, if the tenant vacates the property, but leaves it with a significant amount of damage, this may not be covered. In this case, you need to discuss including Rent Default cover into your Domestic Landlord policy. Rent Default cover might also provide protection if your tenants cannot pay their rent due to losing their jobs, however insurers have recently been making changes to these benefits during the coronavirus pandemic, therefore talk to your insurance adviser on what your policy coverage offers.
One of the key points of Rent Default insurance is that to make a successful claim, there must be a legal lease in place with a rental bond that has been correctly registered with the appropriate authority. So if you lease your rental property to a relative with just a handshake, it’s very unlikely that your insurance policy will be valid, resulting in your claim being rejected.
Lastly, it is important to consider the uptick in Airbnb properties. Since these are characterised as short-term lets, the property is frequently empty, posing a higher risk than a regular rental to insurers. So if you want to leverage short term lets for your investment property, you need to inform your insurer. They may increase the premiums to account for their increased risk or even refuse to provide insurance for these short-term rentals, which is why it’s important to work with an insurance adviser so they can work on your behalf in obtaining the best rate and policy for you.
To reiterate, whilst Domestic Landlord insurance is an important risk management tool for investors, you also need to discuss Loss of Rent, Rent Default, and possibly short-term rental cover with your adviser.
To discuss insurance cover for your residential rental properties, talk to an insurance specialist today. Contact Gary Fletcher.