When it comes to insurance, the first things that come to mind are usually medical insurance, life insurance, fire insurance or home insurance. However, there is also landlord insurance on the market specifically designed to protect those who rent out properties. In addition to covering landlords’ statutory liabilities in relation to rental properties, it also focuses in particular on “problem tenants”. If a tenant defaults on rent or damages the property, landlord insurance can provide coverage for repair costs, as well as the legal expenses involved in recovering rent and repossessing the property.
Landlords who take out landlord insurance can mainly obtain three types of protection. One of the core protections under landlord insurance is against the risk of problem tenants defaulting on rent or being unable to pay rent. When a landlord applies to the Lands Tribunal for a possession order, the insurance company will compensate for the rental loss during that period. The compensation period is generally three to six months, while the final amount of compensation will depend on the specific plan and coverage limit selected by the landlord.
The second type of protection is coverage for malicious damage by tenants and loss of property. This mainly covers losses caused by tenants or their visitors deliberately damaging the fittings, furniture or home appliances provided in the unit. For example, if a tenant maliciously scratches the walls, damages kitchen cabinets or smashes home appliances when moving out, the insurance company will compensate for the relevant repair or replacement costs.
The third type of protection, which is often overlooked, is “third-party liability insurance”. If facilities inside the rental unit malfunction, such as an internal pipe bursting and causing flooding that damages the unit below or the building’s lifts, and the affected third party makes a claim against the landlord, the insurance can cover legal expenses and compensation of up to several million Hong Kong dollars. The specific coverage amount will depend on the plan selected.
Taking out landlord insurance can provide protection for legal expenses and compensation liabilities when an accident occurs, but to avoid disputes arising from future claims, there are several points that must be paid particular attention to in advance. The most important is the legality of the tenancy agreement. When processing claims for rent arrears, insurance companies require landlords to provide a stamped tenancy agreement.
It should be noted that the insurance only covers new rent arrears that occur after the policy has been taken out. If the tenant is already in arrears before the landlord hurriedly takes out the insurance, the insurance company will not provide compensation. Therefore, after the landlord and tenant sign the tenancy agreement, the landlord must promptly complete the stamping procedures and should not risk a greater loss for the sake of saving a small amount.
Before taking out a policy, the insurance terms must be carefully reviewed, especially the arrangements for the excess. The excess refers to the specified amount or proportion that the policyholder must first bear when making a claim, with the insurance company only compensating for the amount above that. As the terms of different insurance companies vary greatly, and the excess may also increase for older properties, old single-block buildings or village houses, landlords must carefully compare the options before taking out insurance to ensure that the excess is within a reasonable and affordable range.
As for the calculation of premiums, insurance companies will take into account factors such as the age of the unit, the type of property and the gross floor area when making adjustments. Generally speaking, the older the property or the larger its area, the greater the potential risks of ageing facilities and structural problems, and the corresponding premium will also increase.
In addition, most landlord rental insurance plans have restrictions on how long a unit may remain vacant, commonly ranging from 30 to 60 days. If the unit remains unoccupied for longer than the consecutive vacancy period specified in the policy, any incidents that occur during that period will not be covered.
Finally, before the tenant moves in, the landlord should take photos to record the existing condition of the unit’s decoration and electrical appliances, and list them in the tenancy agreement. If the tenant unfortunately causes malicious damage in the future, these photos will become the strongest evidence when making a claim to the insurance company.
