Most landlords insure their own car and health, but many leave the property that earns their income unprotected. A fire in one unit, a burst pipe, a collapsed wall or an injured visitor can cost far more than a year of premiums. Insurance does not remove risk, but it turns an unaffordable shock into a manageable cost.

What you are protecting

A rental property carries several separate risks. The building itself can be damaged by fire, flooding, storms or a break-in. The rent you rely on can stop if the unit becomes unusable. You may be held responsible if a tenant or visitor is hurt because of a fault in the building. And any furniture or appliances you supply can be damaged or stolen. Each risk maps to a type of cover.

Main types of cover

  • Building insurance pays to repair or rebuild the structure after insured events such as fire, lightning, explosion, flood or storm damage.
  • Landlord's contents covers furniture, appliances and fittings that belong to you.
  • Public liability pays compensation if someone is injured or their property is damaged because of your property.
  • Loss of rent replaces rent while the unit cannot be let after an insured event.
  • Rent guarantee is offered by some insurers and covers unpaid rent; it usually requires a tenant referencing process.

Your tenants' belongings are their responsibility; encourage them to insure their own contents.

Insure for the right amount

Under-insurance is the most common error. The sum insured for a building should reflect the cost of rebuilding it, not its market value, which includes the land. Ask a surveyor or the insurer for a rebuilding estimate and review it every few years, since building costs change. If you under-insure, claims may be reduced proportionally.

Read the exclusions

Policies exclude things, and the exclusions matter. Common ones include damage from wear and tear, gradual leakage, unoccupied property beyond a stated period, poor maintenance and illegal electrical work. Some policies exclude civil unrest or require extra cover for it. Ask what happens if a unit is vacant between tenants, and whether you must notify the insurer of a change in use, such as short-term letting. For short stays, see tax on Airbnb and short-stay rentals, and check that the policy covers it.

Compare quotes

Get at least three quotes and compare like with like. Look at the sum insured, the excess you pay on each claim, the exclusions, the process for making a claim and the insurer's record in paying claims. A cheap policy that refuses to pay is not cheap. Ask other landlords which insurers paid quickly.

Keep up the maintenance

Insurers expect you to look after the property. Regular servicing of wiring, plumbing, roofs and fire safety equipment reduces the chance of a claim and protects your position when you make one. Keep records of inspections and repairs; the rental expense and deduction ledger records the cost, and repairs vs improvements explains what is deductible.

Apartments and shared buildings

In an apartment building, the management company usually insures the structure and common parts and charges owners through the service charge. Check what is covered and what you still need to insure yourself, such as the inside of your unit. See service charges, sinking funds and apartment ownership.

Tax treatment

Premiums on a rental property are generally an allowable expense if you file your rental income in an annual return, so keep the invoices. If you pay the monthly rental income tax, which is charged on gross rent, expenses are not deducted; compare the two routes with the rental income tax calculator and MRI or annual rental tax. An insurance payout for damage is not always taxable income, but it can affect how repairs are treated, so ask your accountant.

Making a claim

Report the loss promptly, take photographs, keep damaged items until the insurer has seen them and obtain repair quotes. Notify the police if there has been theft. Keep every document and note each conversation. Prompt, well-documented claims are paid faster.

Review every year

Keep your policy documents with your other landlord papers, as listed in records every landlord should keep, and compare the cost of cover with your yield using rental yield explained.

At renewal, check the sum insured, add new assets and ask whether cover still fits how you use the property. Put the renewal date in your calendar with your other deadlines, such as those in the landlord's annual tax and compliance calendar. Good insurance is quiet most years, and valuable in the one year you need it.