Landlord Resources

Bond vs Landlord Insurance – Do You Need Both?

By Mark Hamblyn, Terri Scheer Distribution Manager

Many landlords want assurance that their property will provide a steady flow of rental income, yet too often property investors overlook risk management until after something has gone wrong.

Even tenants with the best intentions could lose their job or suffer an illness and default on rental payments, or accidentally spill a drink and stain the carpets. But if a property sustains damage or tenant stops paying the rent, have you considered how far a bond will stretch?

Underinsurance – with no or too little insurance coverage – has the potential to leave property owners significantly out of pocket.

For investment property owners, a tailored landlord insurance policy may be something to consider, helping to cover against damage or loss far exceeding the bond.

This type of cover can provide landlords peace of mind should unforeseen insured events occur. A standard building and contents insurance policy may not cover landlords for the risks associated with owning an investment property.

What is a bond?

A bond provides a safety net for specific tenant-related issues, while landlord insurance offers a broader cover against a wide variety of risks.

The bond amount should be specified in the lease agreement and the maximum amount can vary from state to state, though it is typically equivalent to four weeks’ rent.

Claims are limited to the amount of the bond lodged at entry, which may not cover extensive damage or loss.

Landlords could find themselves thousands of dollars out of pocket for extensive repairs and the associated loss of rent while works are carried out.

At the end of a tenancy, the bond is returned to the tenant in full unless the landlord makes a claim against the funds.

Common reasons to claim against the bond may include:

• Rent arrears
• Damage to the property caused by tenants (excluding wear and tear)
• Cleaning or waste removal expenses
• Unpaid tenant bills owed to the landlord or property manager

Landlords and property managers should refer to local regulations regarding the lodging and managing of residential bonds.

What is landlord insurance?

Landlord insurance is specifically designed to help landlords manage the financial risks that come with owning an investment property.

This includes loss of rental income – the most common landlord insurance claim – should a tenant abscond or default on their rental payments.

Other risks typically associated with owning a rental property include damage by tenants, theft, legal liability and loss of rental income if a property is untenantable while damage is being repaired.

A good landlord insurance policy will cover landlords for these risks should the bond fall short or not be applicable.

Conversely, a standard home and contents insurance policy may not cover a landlord for the risks associated with owning an investment property, such as loss of rent, tenant damage and legal liability.

Appropriate cover

Many people sign up for an insurance policy without understanding what they’re covered for.

To minimise the risk of underinsurance, a sound landlord investment strategy should include a regular assessment of adequate insurance coverage.

Landlords should check their existing insurance policies and seek professional advice to ensure they have the appropriate coverage in place.

As Australia’s leading landlord insurance specialist, Terri Scheer offers dedicated policies to suit the specific risks associated with owning a rental property.

More than 15,000 Property Management offices across Australia offer Terri Scheer insurance cover as part of their all-inclusive service to landlords, making us the most referred landlord insurer in the country.

Our standard premium offers default cover including:

• Upper limit for weekly rent cover – up to $1,500
• Contents coverage – up to $70,000
• Removal and storage of goods left behind by tenants – up to $5,000
• Damage caused by tenants’ pets – up to $5,000

For further information, call 1800 804 016.

Disclaimer:

Insurance issued by AAI Limited ABN 48 005 297 807 AFSL 230859 trading as Terri Scheer. Read the Product Disclosure Statement before buying this insurance and consider whether it is right for you. Contact Terri Scheer on 1800 804 016 or visit our website at www.terrischeer.com.au for a copy. The Target Market Determination is also available.

The information is intended to be of a general nature only. Subject to any rights you may have under any law, we do not accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, incurred as a result of reliance upon it – please make your own enquiries. This article has been prepared without taking into account your particular objectives, financial situation or needs, so you should consider whether it is appropriate for you before acting on it.