Under the new NSW Resi Tenancy Act 2010 is is FORBIDDEN to have a tenant take out insurance as a requirement or a condition in the lease.
You are correct..just read it myself.
You can't even give a tenant a gift in NSW.
70% of the population is not in NSW.
Australia is very behind the times.
The new NSW RTA does not indemnify the tenant. They are still civilially, criminally and every other way liable for damages.You may not be required to have this insurance, but if the LL's insurance decides to come after the tenant to recoup losses you may lose everything.
Other than NSW you can make it a condition of your lease.
You can make many things a condition of their lease.