Landlord insurance explained: what it covers and whether you need it

Landlord insurance is cover designed for people who rent out a property to a tenant. It helps protect the building, any contents you own inside it, and the rental income you rely on, which a standard home and contents policy is not built to do. If you own an investment property, or you are about to buy one, landlord insurance is one of the main ongoing costs to plan for, and whether you need it depends on your circumstances and the property you own.

This guide walks through what landlord insurance covers, how it differs from ordinary home insurance, what drives the cost, and the questions to ask before you choose a policy. Every figure below comes from an authoritative source we have linked so you can check it.

Do I need landlord insurance?

If you let a property to a tenant, you carry risks that an owner-occupier does not. Your building can be damaged, your rental income can stop if the property sits empty, and you can be held liable if someone is injured on the property. A standard home and contents policy is written for the person living in the home, not for a landlord, so it may not respond to many of these situations.

Moneysmart, the Australian Government’s free money guidance service run by ASIC, lists landlord insurance as one of the regular ongoing costs of owning an investment property, alongside building insurance, council and water rates, body corporate fees, land tax, property management fees, and repairs and maintenance. That tells you it is a normal part of running a rental, not an optional extra most landlords skip.

Whether it is right for you depends on your situation. A few things to weigh up:

• Whether you own the building, or whether a body corporate already insures it under a strata title
• How much rental income you depend on each month, and how long you could cover the loan if the property were empty
• The value of any contents you own inside the property, such as carpets, blinds, appliances or furniture
• Your appetite for carrying these risks yourself rather than transferring them to an insurer

No one can tell you that you must hold landlord insurance, and the right level of cover depends on your circumstances and each insurer’s policy terms. The sections below give you the detail to make that call.

What landlord insurance covers

Landlord insurance is generally broader than a standard home policy because it is built around the risks of letting a property. Cover varies between insurers, so always read the product disclosure statement, but a landlord policy commonly bundles several elements.

Building cover

This protects the structure of the property, in the same way home insurance does for an owner-occupier. Moneysmart explains that home insurance covers the cost of repairing or replacing your house when something goes wrong, including the building itself and fixtures such as plumbing and built-in cabinetry, as well as other structures like a garage or inground pool. For a landlord, this is the cover that responds if the property is damaged by an insured event such as fire, storm or a burst pipe.

Contents you own

A home insurance policy does not cover household items and personal belongings, contents insurance does. As a landlord, the contents you typically insure are the items you own rather than the tenant’s, for example carpets, curtains, light fittings, appliances and any furniture in a furnished rental. Your tenant is responsible for insuring their own belongings.

Loss of rent

This is one of the main reasons a landlord policy exists. Moneysmart warns that with a rental property there may be times when you have to cover the costs yourself if you do not have a tenant. Loss of rent cover is designed to help when an insured event makes the property unliveable, or in some policies when a tenant defaults, so that your income does not simply stop. The exact triggers and limits differ by insurer, so this is a section of the policy worth reading closely.

Liability

Home insurance may cover legal costs if someone is injured on your property. For a landlord this public liability element matters, because you can be held responsible if a tenant or visitor is hurt on the property and the cause relates to the building.

Landlord insurance versus standard home insurance

The clearest sign that these are different products is that Moneysmart lists building insurance and landlord insurance as two separate ongoing costs for an investment property. They are not the same policy with a new label.

If you rent the property out on a standard home and contents policy, you may find a claim is reduced or declined because the insurer was not told the property was tenanted. Tell your insurer the property is a rental and ask for cover that matches how the property is used.

What landlord insurance may not cover

Every policy has exclusions, and Moneysmart’s general advice is to focus on what you need and what is, and is not, covered by the policies you compare. Common gaps to check for include:

• The tenant’s own belongings, which are the tenant’s responsibility to insure
• General wear and tear, which is not the same as sudden accidental or malicious damage
• Some natural events that may be excluded or need an add-on, so check how the policy treats flood, storm and similar perils
• Periods where the property is unoccupied beyond a set time, which some policies treat differently

Because these vary so much between insurers, the exclusions section of the product disclosure statement is the part to read first, not last.

What drives landlord insurance cost

There is no single price for landlord insurance, and we will not quote a premium figure because the cost depends on the property, the cover you choose and the insurer. What we can do is set out the levers that move the price and the wider cost of running a rental.

The features Moneysmart suggests checking when comparing any home insurance policy apply here too: the premium, the excess (the amount you contribute towards a claim), exclusions, legal liability cover, extended cover, and any cover limits on specific items. A higher excess usually lowers the premium but means you pay more when you claim, so balance the two against your own budget.

Setting the right sum insured also matters. Moneysmart advises working out an accurate sum-insured amount to avoid being underinsured, using building and contents calculators such as those on the Insurance Council of Australia website. Insure for too little and a claim may not rebuild or repair the property in full. Insure for far more than the rebuild cost and you pay for cover you cannot use.

Landlord insurance is only one line in the budget. Moneysmart’s case study of two investors, Simon and Tiana, sets out a monthly shortfall where rent does not cover the loan repayments, expenses, strata fees and a maintenance reserve. The point is the habit of mapping every cost before you buy.

You can model your own repayment line before you add insurance and the other holding costs.

How to choose a landlord insurance policy

A simple way to work through it:

These steps do not promise a particular outcome on any future claim, because that depends on the insurer’s terms and the facts at the time, but they give you cover that matches how you actually use the property.

Where landlord insurance fits in your investment plan

Insurance is one piece of a sound investment loan structure. Before you settle on a policy, it helps to have the loan itself working for you, which is where your borrowing capacity, repayment buffer and loan features come in. If you are weighing up an investment purchase, our guide to investment home loans sets out how lenders assess investors and what to plan for.

If you are still buying your first place rather than an investment, a few related reads may help. Our first home buyer guide covers the basics, the deposit and grants guide explains how much you may need up front, and the home loan costs guide walks through the ongoing costs of owning, of which insurance is one.

Talk it through with the team at Finance Lab

Landlord insurance is one part of getting an investment property right, and it sits alongside your loan structure, your buffers and your wider plan. If you would like help thinking through how an investment purchase fits your circumstances, the team at Finance Lab can talk it through with you and point you to the right next step. Your options will depend on your circumstances and each lender’s criteria.