Landlord Insurance vs Building Insurance: What Australian Property Investors Need to Know

Landlord insurance and building insurance are not the same product. They overlap in one area, but protect against very different things. Getting this wrong either leaves you paying for cover you already have, or exposed to the risks most specific to investment properties. Here is how to tell the difference.

What is the difference between landlord insurance and building insurance?

Building insurance covers the physical structure of a property against insured events like fire, storm and flood.¹ Landlord insurance is a package that can include the same structural cover, with options to add protections specific to renting the property out: loss of rent, tenant damage and liability as a landlord.

The distinction is not about who owns the property. It is about what cover is selected. Building-only cover protects the structure. A landlord insurance package with additional components selected also covers the risks that come with having a tenant.

What does building insurance cover for an investment property?

Building insurance covers the structure against sudden and unforeseen damage from insured events. Policies vary, but cover typically includes:

• Walls, roof, floors and the structural framework
• Permanent fixtures and fittings: kitchens, bathrooms and built-in wardrobes
• In-ground services connected to the building, including pipes and cables
• Outbuildings on the property such as garages and sheds

What building insurance does not cover:

• Loss of rental income while the property is being repaired
• Damage caused by tenants
• Your liability as a landlord if a tenant or visitor is injured
• The contents of the property

Holding building-only cover on an investment property means the structural risks are addressed, but the rental-specific risks are not.

What does landlord insurance cover that building insurance does not?

Landlord insurance adds coverage for the risks that come specifically from renting your property out.

• Loss of rent. If an insured event makes the property uninhabitable and your tenant has to vacate, landlord insurance can cover the rental income you lose while repairs are carried out.
• Tenant damage. Malicious damage caused by tenants is covered by most landlord policies. Accidental damage is treated differently across policies and insurers, so it is worth reading the Product Disclosure Statement carefully.
• Landlord liability. If a tenant, their visitor or a member of the public is injured on your property and makes a liability claim against you as the landlord, this section of the policy responds.
• Rent default. Some landlord policies include cover for unpaid rent if a tenant vacates without paying. This benefit varies significantly across insurers in how it is triggered, what conditions apply and how long payments continue.

At a glance:

	Building insurance	Landlord insurance
Structure (walls, roof, fixtures)	Covered	Covered where building cover is selected
Loss of rent	Not covered	Optional cover
Malicious tenant damage	Not covered	Covered by most policies
Landlord liability	Not covered	Optional cover
Rent default	Not covered	Available in some policies

Does landlord insurance include building cover?

Landlord insurance is structured as a package. When you take it out, you select which components to include: building cover, contents cover or both. Selecting building only gives you structural protection but leaves the landlord-specific covers unselected. Loss of rent, tenant damage and landlord liability are only included if those components are part of the policy. The building component covers the same structural events as a standalone building policy.

The exception is strata properties, which is where this gets more complicated.

Can I take out building insurance on a strata investment property?

In practice, no. If you own a unit or apartment in a strata scheme, the owners corporation (body corporate) takes out strata insurance covering the building structure and common areas.² Insurers will not cover building-related claims through a separate policy when a strata policy already insures the building. A standalone building policy would not respond to claims in this context.

What a landlord insurance package covers in a strata situation is the lot-level risks:

• Loss of rent if your individual unit becomes uninhabitable after an insured event
• Malicious or intentional damage by tenants to fixtures and fittings within your lot
• Your liability as the landlord of a tenanted unit

The gap that catches investors out is assuming the strata policy covers everything. It covers the common property and the structural fabric of the building. It does not cover your loss of rent, your tenants causing damage inside your lot or your liability as an individual landlord.

Is landlord insurance worth it for an investment property?

That depends on how you weigh the scenarios it responds to against the cost of the premium. Here are three hypothetical situations where landlord insurance would be triggered:

• A tenant causes $20,000 of malicious damage and vacates mid-lease
• A storm event makes the property uninhabitable for six weeks while repairs are carried out, and you lose two months of rent
• A visitor to the property is seriously injured and pursues a liability claim against you as the owner

In each case, without cover, the financial exposure sits with the owner.

Premium costs vary depending on property type, location and which components are selected.³ Your accountant can advise on whether premiums are deductible in your situation.

What happens if a tenant damages my investment property?

Your options depend on whether you hold landlord insurance and the type of damage involved.

With landlord insurance, malicious or intentional damage by a tenant is generally covered, subject to your policy terms and excess. Good condition reports from your property manager and documented inspections make the claim process significantly smoother.

Without landlord insurance, your main avenue is the bond and the relevant state tenancy tribunal.⁴ The bond is typically equivalent to four to six weeks of rent, which often falls well short of the cost of serious damage. Recovering amounts beyond the bond from tenants who have already vacated can be a slow and difficult process.

The practical risk of tenant damage is one of the primary reasons landlord insurance exists as a distinct product from standard building cover.

Key Takeaways

• Building insurance covers the structure only. A landlord insurance package can include building cover plus rental-specific protections, or building only which leaves loss of rent, tenant damage and landlord liability unselected.
• Holding building-only cover on an investment property means the structural risks are addressed but the rental-specific risks are not.
• If your investment property is in a strata scheme, insurers will not cover building claims through a separate policy. The strata insurance already covers the building. Landlord insurance covers your lot-level risks instead.
• Premium costs vary by property type, location and components selected. Your accountant can advise on deductibility for your situation.
• Tenant damage cover varies significantly across policies, particularly on the question of accidental versus malicious damage. Reading the PDS before you buy matters.

If you want to talk through your current cover structure for an investment property, Cipher can review it with you. Get in touch.

The information in this article is general in nature and does not constitute legal, financial or tax advice. Please speak with a qualified adviser about your specific circumstances.

Footnotes

1. Choosing home insurance, ASIC MoneySmart ↩

2. Strata, NSW Government ↩

3. Insurance explained, Insurance Council of Australia ↩

4. Issues with your landlord, Tenants Victoria ↩