A bit of a novel but here goes as promised
Here’s a go at summarising landlord insurance, with so many policies available these days it’s incredibly hard to compare. Take this however you wish, I have been in the industry for over 20 years, dealt with thousands of real estate agents, spoken at many conferences etc. on the subject of landlord insurance and risk management, but I do work for one of the major players in this industry. So disregard if you wish, I do try to provide this sort of information without bias as far as is humanly possible.
Firstly a clarification. There is a lot of talk about getting a “landlord” policy and in the case of a house a “building” policy as well. Although this is correct, there are certainly “landlord” policies that include building, so you don’t necessarily need two separate policies. In essence they come as:
- Landlord policy including contents (carpets, curtains etc.) and tenant risks only – suitable for a townhouse/unit etc.
- Landlord policy including building and contents (carpets, curtains etc.) and tenant risks – suitable for a single dwelling (such as a house)
If for some reason you have a house and are obsessed with having a specific landlord policy that does not include building, then yes, you will need to get a standalone defined risks building policy as well.
To use an example of what I believe are the two most discussed policies on this forum (EBM RentCover and Terri Scheer) the policies would match up like this:
- Units/townhouses - EBM “RentCoverUltra” or Terri Scheer “Landlord Preferred”.
- Houses – EBM “RentCoverPlatinum” (which combines both the landlord policy and a defined risks building policy into one package) or Terri Scheer “Landlord Preferred” PLUS a separate defined risks building policy.
Putting those policies aside for a moment many of the policies people are opting for these days are with the banks or major general insurers. This is more because they are easy to obtain, have fancy advertising, people figure they must be able to “trust” a big insurer, and/or they may be cheap. Most of these can largely be grouped together as being very similar in features. In most cases these policies are household policies that have had some features added on to make them a “landlords” policy, rather than built from the ground up to suit landlords, real estate agents and the property management industry. Sometimes they are quite cheap, and the extent of cover can vary but in the main there are some real traps to watch out for (these do vary by Insurer but most will include some if not all of these issues).
These policies I group as opposed to the traditional landlord policies that have been designed largely in conjunction with the property management industry, which includes (but by no means limited to) what I believe are the two major players being EBM RentCover and Terri Scheer. These are also the policies regularly available through property management companies who have to deal with the fallout from bad situations all the time. I will refer to these as the “industry” policies.
So as for the policies from major insurers and banks (generalising):
- The excesses can be very high and may not necessarily referred to as an excess, but rather a period of lost rent before the claim kicks in. This is often written that they won’t pay the first 4 weeks rent loss, or that rent loss only kicks in on the 5th week. The logic they are likely to use is that there is a bond equivalent to 4 weeks but shows their lack of understanding. Rarely will the bond or at least some of it not be required for non-claimable expenses such as clean up. Personally I believe this restriction is unacceptable and with my investor (yes I am one) hat on I would exclude any policy with this restriction. On the other hand the “industry” policies (such as RentCover and TS) do not do this.
- Some of these policies have a definition of a lease that will require the tenant to be on a fixed term lease to be able to claim, so if they move on to a periodic lease or lease continuation you are likely to find there is actually no cover or at best limited cover available. Again, the “industry” policies don’t do this.
- These policies will often cover the basic rent loss situations such as default or broken leases for varying periods, however are likely to not cover all the intricacies that can occur in a tenancy. This includes situations such as tenant hardship (without specific inclusion there is likely to be no claim as technically the tenant hasn’t done anything wrong) and death of a tenant (again, without specific inclusion there is likely to be no claim for rent loss as the lease effectively terminates upon the death of the tenant). Again, the “industry” policies generally have inclusions for these types of events.
- Most of these policies will include Malicious Damage by the tenant but many will not include Accidental Damage or even Deliberate and Intentional Damage. This one is huge and the significance cannot be underestimated. Malicious Damage requires a police report and you essentially need to prove that the tenant caused the damage with “malicious intent”, meaning that their sole intention was to cause damage to the wall (or whatever was damaged). This leaves out an enormous number of damage incidents that occur every day, whether it be damage caused by a party or a whole host of situations that you as a landlord may view as “malicious” but not so by an insurer. If anyone is interested I am happy to post a range of real claim situations that we have seen and are likely to not be considered as malicious damage by many policies. My advice – make sure you have a policy that includes both malicious and accidental damage, or at the very least deliberate and intentional damage (not as good as accidental but part way there). The “industry” policies generally include both malicious and accidental damage.
- Some of these policies will tell you that they will not pay a claim if the tenant deliberately burns the property to the ground. This is a technical one and I would always be happy to argue the point with an insurer if they tried it, in some cases I believe they just don’t understand their own wording well enough. But for mine, I wouldn’t take the risk that I may have to try to argue the point. I can expand on this if need be but it’s a bit confusing unless you really understand the way Product Disclosure Statements are written.
They’re some of the major issues with the “major insurer” policies, in my opinion they’re largely built to suit the masses rather than designed to be industry specific.
As for the “industry” policies. There are certainly more out there than EBM RentCover and Terri Scheer, but these days I believe they are probably the two most prominent.
The main things about these policies is that they have been developed as specific landlord policies with a lot of consultation with the property management industry to make sure they are relevant to real life claim situations whilst remaining affordable. Also because they are often available through real estate agents they have continually evolved with both social and industry changes, such as, whoever heard of “tenant hardship” being a reason to be let out of the obligations of a lease 15 years ago? In the main I believe the “industry” policies are a far better option for these reasons alone, before you get anywhere near comparing policy conditions and premiums.
I don’t wish to get into an EBM vs Terri Scheer debate, I’m obviously biased in that regard. Both policies (as are some of the other “industry” policies) are good policies and I believe superior to most others out there. Company-wise there is a difference that people get confused about. EBM is a broker that has developed a policy and then had it underwritten by an Insurer (QBE), whereas Terri Scheer WAS a broker but was bought out by Vero several years ago so you are now dealing with the insurer rather than a broker. The broker route is in my experience far preferable for plenty of reasons, without going right into them it does allow us more flexibility (I believe) in our dealings with property managers and policy holders. Our claims settling record is I believe second to none with most claims settled within 5 working days (on receipt of full info), we do this under a claim settling authority from the insurer.
That aside, both companies have close relationships with property managers and the real estate industry. There are differences between the products that are offered, but overall both provide good cover. They are not necessarily always the cheapest but insurance is about covering risk, and getting “value” rather than “cheap”. If you want to base your buying purely on price it could be the greatest mistake you ever make.
The other thing to be clear about with these two company products is this:
With EBM you have “RentCoverUl;tra” which is essentially designed for units/townhouses, and “RentCoverPlatinum” which combines the tenant-risk features of RentCoverUltra with a defined risks building policy, essentially designed for houses (or “RentCoverShortTerm” which is designed for short term lettings rather than permanent letting).
With Terri Scheer you have their “Landlord Preferred policy” which includes the tenant risks and is suitable for units/townhouses, but if you need to insure a house you would still use this policy but then need to add a defined risks building policy as a separate policy (whereas EBM packages it). The policy is also completely different if you rent privately rather than through a real estate agent so take care there. TS also has a separate policy for short term lettings.
I could write another 20 pages on this subject but I am sure anyone that managed to get this far is ready for a nap or a stiff drink. Below is also a link to a document that includes some questions worth asking insurer’s and also does a bit of comparing, bearing in mind this is certainly an EBM document hence looking at features of the RentCover products, there are two pages.
www.rentcover.com.au/files/pdf/Important_Questions.pdf
I will reiterate, take this post as you choose, it’s not meant as an advertisement but I am very passionate about this subject and genuinely hate seeing people make ill-advised (in my opinion) choices. I don’t by the way personally benefit from any RentCover policies sold or in fact even work directly in that division these days, although I did for many years. But I still work for the company.
And remember that no insurance is perfect, there is a balance between extensive cover yet keeping it affordable, but if the policy is “cheap” it is probably the first sign that the cover may not be what is required.