Landlord insurance exclusions are routinely misunderstood, and the misunderstanding usually surfaces at the worst possible moment: after a tenant has left, or after a claim has been lodged and denied.
The core confusion is that landlord insurance is not a substitute for building insurance. It sits alongside it, covering a different set of risks. Buy a policy expecting it to rebuild a damaged roof and you will be disappointed.
What landlord insurance is designed for
Landlord policies generally respond to loss of rent and to tenant-related events. The common inclusions are rent default, loss of rent while a property is uninhabitable after an insured event, tenant damage beyond fair wear and tear, theft by a tenant, and liability cover for injuries or damage occurring at the property.
Each of those has conditions attached, and the conditions are where claims fail. Rent default cover usually requires a formal lease, a bond lodged correctly and a documented arrears process. Tenant damage cover usually excludes fair wear and tear, and the definition of wear and tear is broader than most owners expect.
Liability cover is the quiet workhorse of the policy. It responds if someone is injured at the property and the owner is found responsible, which is a risk that exists whether the tenant is careful or not.
The landlord insurance exclusions that matter most
- Fair wear and tear, which covers a great deal of what owners regard as damage.
- Damage caused by pets where the lease did not authorise a pet.
- Loss of rent where the lease was not properly documented or the bond was not lodged.
- Malicious damage in some policies, or sub-limits on how much it covers.
- Flood, which is frequently excluded or requires a specific option.
- Illegal use of the property, including some drug-related damage scenarios.
Read the sub-limits rather than the headline cover amount. A policy advertising generous tenant damage cover may cap it per event at a figure well below what a serious incident costs to repair.
How to test a policy before you buy it
Ask what the claims process looks like in practice, particularly for rent default. Ask how long the policy requires you to wait before a default claim can be lodged, and what evidence is required. Ask whether the insurer accepts a tribunal outcome as proof or requires its own assessment.
Compare on the exclusions rather than the premium. Two policies with similar prices can behave very differently when a claim is made, and the cheaper one is often cheaper because it carries exclusions the other does not.
Also check the interaction with your property manager’s processes. A well-run agency keeps the records an insurer will ask for: condition reports, inspection notes, arrears correspondence and lease documentation. That paperwork is what turns a valid claim into a paid one.
Where it fits in the overall picture
Insurance is one layer of risk management, and it works best alongside good screening, regular inspections and a lease that is properly drafted. A policy does not replace those, and relying on it to cover a poorly managed tenancy is expensive.
Land tax and other obligations sit outside insurance entirely and are worth understanding separately. Our guide to Perth rental yield suburbs covers how returns are calculated, and our guide to arrears management versus payment plans covers the process that protects a rent default claim.
Review the policy annually rather than setting and forgetting it. Rents change, the property’s condition changes, and insurers adjust their terms. A policy that suited a three-bedroom house in 2021 may be poorly matched to the same property now, particularly if the sum insured has not kept pace with rebuilding costs.
Keep the documentation current too. Condition reports, entry and exit photographs, inspection records and correspondence with the tenant are the evidence base for any claim. Owners who maintain those records consistently are the ones whose claims proceed without argument.
Own a rental in Perth? Smart Realty can review how your property is managed and where the risk actually sits. Request a free rental appraisal if you want to know what it should be earning.