Landlord vs homeowners insurance: Key differences every Australian investor should understand

Homeowners insurance protects a homeowner’s primary place of residence against risks such as property damage, theft and liability for injuries occurring on the property. It typically covers the structure of the home, personal belongings inside and legal expenses for accidents involving guests. However, it does not cover tenant-related risks.

Rental property insurance, commonly known as landlord insurance, is tailored for property owners who lease their properties to tenants. It offers coverage for various risks associated with renting out a property, including property damage, loss of rental income and potential liabilities. This type of insurance is designed to safeguard landlords from financial losses stemming from tenant-related issues or unforeseen events.​

While property and contents are covered in both policies, the difference between landlord vs homeowner insurance focuses on the needs of each policyholder to offer a distinct and unique type of protection.

Landlord Insurance: This policy offers coverage for additional risks unique to renting out a property. Landlord insurance typically covers:

Homeowners insurance, on the other hand, is designed for people who live in their property as their primary residence. While it also covers property and contents, it does not provide the necessary protections for rental properties or the risks associated with leasing to tenants.

Typical homeowner insurance policies cover:

However, homeowners insurance does not cover the unique risks that landlords face, such as tenant-related damage, loss of rental income or tenant eviction costs. Therefore, homeowners insurance is not suitable for investors who are renting out their property.

Table 1. Comparing depreciation for new vs. old properties

It is important to note that landlord insurance policies can vary, with some providing comprehensive coverage for all the scenarios mentioned, while others may offer more limited protection.​

Public liability insurance is often included in landlord insurance policies. It covers legal expenses that may arise when an incident occurs on your rental property. For example, if a tenant or visitor is injured on the property and decides to sue, public liability insurance can cover the associated legal costs. Understanding the specifics of your policy ensures comprehensive coverage.

Homeowners insurance won’t cover rental-related risks, so if you're transitioning your property from an owner occupier to a tenanted property, it's important to switch to landlord insurance to ensure you're fully covered. If the property is partially rented out, you typically need landlord insurance for the rented portion, as it covers rental-related risks like tenant liability and loss of rental income.

However, if you still live in part of the property, your homeowners insurance would cover your personal residence and belongings. It's important to ensure both policies are aligned to cover different aspects of the property (personal vs rental).

1. Assess your insurance needs

Determine the nature of your rental property, whether it's a short-term holiday rental, long-term lease, shared accommodation, or part of a strata complex. Each scenario presents distinct risks and may require different coverage. Tailoring your insurance to your specific situation ensures adequate protection.

2. Compare policy options thoroughly

Not all insurance policies are created equal. While cost is a factor, it's crucial to understand what each policy covers and excludes. Reading the fine print and consulting with insurance brokers can help you find a policy that offers comprehensive coverage suited to your needs.

3. Accurately estimate your property’s replacement cost

Underestimating the cost to rebuild your property can lead to underinsurance, leaving you financially vulnerable in the event of significant damage. Consider factors such as construction costs, site constraints, demolition expenses, and removal of hazardous materials when calculating the replacement cost. Regularly updating this estimate, especially after renovations or improvements, ensures your coverage remains adequate.

While homeowner insurance might be suitable for those living in their property, it’s not the right option for landlords. As an Australian property investor, you need the added protections that come with landlord insurance, such as coverage for tenant damage, loss of rental income, eviction costs, and public liability insurance. By selecting the right landlord insurance policy, you can safeguard your investment and ensure your property remains a valuable and profitable asset.

Always take the time to understand the differences between landlord vs homeowners insurance and choose the right coverage to suit your unique investment needs.

Consulting with a specialist insurance provider like BMT Insurance can further ensure that you have the best policy in place to protect your rental property. With tailored landlord insurance solutions backed by over 20 years of construction cost data from our in-house quantity surveyors, our experienced team understands the complexities of property investment and works with leading insurers to ensure you’re properly covered for every scenario.

Protect your investment with an expert insurance broker. Call 1300 268 467 or Request a Quote today to find out how we can help safeguard your property.