When relatives need a place to stay, opening your investment property to them might seem like a win-win for everyone. There’s even less risk for you. But is the risk low enough that you can ditch landlord-specific policies? Do you need landlord insurance if renting to family members?
In most cases, getting landlord coverage is advisable, even with trusted tenants.
In this article, we’ll explore why that is and why some people might find the insurance unnecessary despite the risks. Read on to see if you should get a landlord-specific policy and how to talk to them about it if you do.
Why Some People Think Landlord Insurance Isn’t Necessary
A stubbed-out cigarette, an overflowing bath, or a house party that gets out of hand could all lead to issues for landlords. Fortunately, standard landlord (LL) insurance policies protect against damage caused by tenants.
However, some landlords believe that insurance may not be necessary if they are renting to a trusted family member. After all, if you know your sister or cousin is reliable and responsible, surely there is less risk involved?
Instead, they believe that strata insurance or contents cover held by their family member tenant should suffice. Or they may be willing to pay out of pocket themselves should any problems emerge.
6 Reasons to Get Landlord Insurance Even When Renting to Family
Let’s explore why getting landlord policies can be a smart move for many property owners, even those who choose to rent to their relatives.
1. To Protect Both Your Relationship and Your Investment
No matter how careful your family members are, you have to assume accidents will happen every now and then.
Unfortunately, there could be some unwanted friction whenever personal relationships and finances intertwine. With a formal landlord insurance policy in place, you take blame or money disputes out of the equation as much as possible.
Some landlords in Brisbane even prefer hiring a local property management agency when renting to family members specifically.
This might sound counter-intuitive, but the idea here is to place a neutral third party between the tenant and the landlord. This not only makes the renting process easier but could also help separate the personal relationships from the financials.
2. Home Insurance Won’t Do for Covering Your Investment Property
You might assume your existing home insurance policy has you covered in cases of property damage or losses. However, standard home and contents insurance generally becomes invalid if you rent the property out. It might not matter to the insurer if it’s only to family or friends.
This way, when you try to claim damages like a broken fence in the rental property, the insurance company might deny your claim on a regular home insurance policy.
Landlord insurance coverage, on the other hand, will cover your rental property.
3. Tenants Content Insurance Won’t Do, Either
Naturally, your tenants will arrange a contents coverage for their possessions. However, their policy won’t account for the building itself if the structure sustains damage. As the owner, the burden of repairs would fall on you without an active landlord building insurance policy.
Plus, maybe your rental is furnished. In this case, your tenants’ contents coverage wouldn’t extend to your belongings. Instead, a landlord’s contents insurance policy can address internal assets like carpets, light fittings, blinds, appliances, etc.
For full protection as an investment property owner, specialised insurance is key!
4. It’s Often Good to Have Rental Income Coverage
Maybe you trust that your relatives won’t intentionally hold the rent back from you at any point. But what happens when they experience sudden financial hardship and can no longer make rental payments on time?
One of the main perks of LL policies is the insurance provider would cover rent default. Additionally, if an insured event renders the rental property uninhabitable for a while, you could claim lost rent on landlord insurance.
5. You Need Legal Liability Cover
Family members themselves may not sue you over mishaps and accidents. But your relatives might have other people over on the premises, and they might hold you liable if anything happens.
Standard landlord insurance policies usually cover legal liability, taking that pressure off you.
6. Your Mortgage Lender Might Require It to Reduce Financial Risks
Landlord insurance isn’t legally mandatory in Australia, but mortgage providers might insist you get adequate insurance coverage, even if you’re renting out to family members.
After all, lenders want to protect the assets they finance, regardless of who the second party on the rental agreement is and how much you trust them.
How to Talk to Your Family About Landlord Insurance
If you do get LL insurance, you might want to let your family members know. You don’t want them to unintentionally do something that could void the coverage, like booking repairs without an insurance consultation, for instance.
Being open from the start prevents misunderstandings. But the catch is that telling your family members you’re getting a landlord insurance policy could make it look like you don’t trust them.
Here are some tips for approaching the topic tactfully:
- Get ahead of the misconceptions and explain that the insurance isn’t just for covering malicious damage and the legal expenses of eviction—it covers lots of other incidents as well.
- Explain to them that you might need insurance to take out a mortgage as an investment landlord.
- Tell them this doesn’t mean you’ll be tracking everything they do. These are just precautions you have to take with tenants, not because of them specifically.
- Promise you’ll handle the paperwork yourself so they don’t have to deal with insurance companies directly.
Landlord policies may appear redundant when leasing to responsible family members, but they can help protect you from unforeseen events. Plus, the insurance could be particularly handy if you can’t afford to lose your rental income any time soon.
Just don’t forget to get in touch with your lender before you make the final decision.