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Landlord insurance covers property investors against risk specifically related to tenants and the rental property business. Policies like homeowners cover (HOC), home content insurance and life insurance don’t cover everything. Tenant issues such as legal disputes, loss of rental income and tenants damaging your property needs to be handled separately.
Renting out property can be profitable, but it carries inherent risks that can impact your financial stability. Insurance is a risk mitigation tool. You will need landlord insurance if you don’t have a property emergency fund or are terrible at screening tenants.
Why Landlord Insurance is Important for Property Owners
As a landlord, you face a unique set of risks that differ from those faced by homeowners. These risks include property damage, legal disputes and loss of rental income. As a seasoned property investor, I am fortunate that I have strict measures in place to screen tenants. However, this is not the norm. People become desperate for occupancy and lower their standards.
Some cases include;
- Property Damage: Tenants, natural disasters, or vandalism can cause costly repairs.
- Legal Disputes: With the PIE act requiring legal action to evict a tenant, you need to create a legal buffer. Issues from injury claims and property damage allegations could also eat into your profitability.
- Loss of Rental Income: Cash flow problems could arise during vacancy periods. Issues may also occur if a tenant doesn’t pay the rent due.
You need to safeguard your revenue stream and legal interests and protect your physical assets. With landlord insurance, you get the best of all worlds.
Types of Insurance Policies to Consider
Depending on the policy, landlord insurance covers rental loss, legal costs and property damage. However, it doesn’t cover everything. In some cases, other insurance products are required.
For example, your home loan could have a prerequisite of life insurance. In this case, the life insurance policy will be ceded to the bond. When you die, the insurance policy will pay off your bond. Any excess cash will be paid to the beneficiaries.
Home owners cover (also called building insurance) normally pays out if the building gets damaged, e.g. through a fire. Under the Sectional Titles Schemes Management Act (STSMA), the Body Corporate is legally required to have insurance. This must cover the entire building and property structure.
If you own a freehold property, you are responsible for your insurance. This is optional unless specified in your bond contract. Neglect this at your peril.
What’s the Difference Between Landlord Insurance and Homeowner’s Insurance
Homeowner’s cover (HOC) or Homeowners insurance is designed for owner-occupied properties and often does not extend to rental-specific risks. Landlord insurance is tailored for rental properties. It includes critical protections, such as loss of rental income and liability coverage for tenant-related incidents.
Homeowners insurance covers damage to your home, belongings, and other assets. Depending on the policy, it could include liability, power outages (and surges), geysers, earthquakes, home content, breaking and malicious damage.
On average, landlord policies cost about 20% more than standard homeowners insurance coverage on the same home when owner-occupied.
Landlord insurance terms and conditions
There are certain criteria that needs to get met before landlord insurance will pay out. This post on Reddit summarised it nicely and I have expanded on the details:
- You can only claim after the initial period of three months.
- If you claim half of the rent is paid to you for the first default month. The other half is used as your excess. Subsequent months will be paid in full with a limit of six months.
- The loss you are covered for is for the rent. It does not cover any other arrears such as municipal accounts that is unpaid. Some policies may cover a limited amount for damages caused, but usually that is your cost.
- The policy will cover you for any future expenses in evicting a defaulting tenant. In essence, they take over after a default and their lawyers takes care of the eviction process. Once evicted, they return your property to you as is.
- Any prospective tenant has to be vetted by them. You will need to submit the entire set of documents. This includes TPN reports and bank statements. After submission, they will advise if the tenant is acceptable or not.
- You need to use their legal contract, not your own.
- The insurance company might collect the rental income on your behalf
Additional Policy Features for Enhanced Protection
Landlords can opt for extra features to increase their protection, such as:
- Rent Guarantee: Coverage to reimburse rent if your tenant defaults, often available through specialised policies. This can be invaluable for landlords relying on consistent income.
- Landlord Liability Umbrella: Extends liability limits, offering additional protection in case of serious incidents.
- Malicious Damage: Covers intentional damage caused by tenants or guests, ensuring you’re not left with costly repairs.
Note that wear and tear is not included in the policy cover.
Natural Disaster Considerations
While many policies cover common perils, natural disasters often require separate coverage. Depending on your property’s location, you may need additional policies for flooding, tropical cyclones, volcanic explosions or alien invasions.
Companies offering property insurance (including landlord cover)
Insurance providers in South Africa offer landlord insurance with coverage tailored to the rental market:
- Santam offers coverage that includes property damage, personal liability, and optional add-ons for short-term rental scenarios or semi-commercial use. This can be helpful if you’re renting out your property on a frequent or commercial basis, as Santam can offer broader coverage options under business or short-term rental policies
- Outsurance provides a “Rent Protect” option designed for landlords, covering missed rental income due to unforeseen events, alongside traditional property damage and liability coverage.
- RentSecure by Just Property : RentSecure is specifically designed for landlords. It provides coverage for rental defaults. It also covers loss of rental income due to tenant non-payment. The policy includes legal support for eviction proceedings. It is a convenient choice for landlords who prioritise financial stability. It also helps in the streamlined management of rental risks.
- MiWay offers customisable property insurance with coverage for buildings and contents. The coverage can be extended to fit landlord needs. This depends on the property type and usage. MiWay’s user-friendly platform allows landlords to select cover options that are flexible and tailored
- Old Mutual: Provides building and contents coverage for rental properties, covering structural damage and liabilities. Policies are customisable with add-ons for accidental or tenant-related damage.
- Discovery Insure: Offers comprehensive coverage options for property owners, including liability and structural coverage. Discovery’s policies may be suitable for landlords with multi-unit properties or commercial rentals.
Staying Informed and Regularly Reviewing Your Coverage
As the rental market and your property evolve, your insurance should adapt. Regular policy reviews ensure you remain adequately protected as property values increase or new risks emerge. Conduct annual assessments or check in with your insurance provider if you make significant upgrades or modifications.
Conclusion
By securing comprehensive coverage, you’re investing in the stability and long-term profitability of your rental business. Experienced insurance professionals understand local market trends. They can ensure your coverage aligns with your needs. This allows you to manage your property with confidence.
