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What you need to know
Rent default covers you if your tenant stops paying for rent which is not the same as loss of rent.
Rent default can protect you if your tenant stops paying the rent; loss of rent helps if your property becomes uninhabitable.
You will generally need to pay extra to get rent default included in your cover.
What's the difference between rent default and loss of rent?
Rent default
Rent default, sometimes called tenant default, protects you if your tenant stops paying the rent and is in breach of a tenancy agreement. For example, if your tenant's income is stopped or reduced due to an unforeseen event such as losing their job or becoming ill, rent default can pay you a rental income. It can also cover associated legal expenses.
Loss of rent
Loss of rent, on the other hand, can pay you a rental income if your property becomes uninhabitable because of an insured event, like a fire, storm or rainwater damage. You will only be covered for the period you were unable to charge rent because the tenant was unable to live in your property. The insurance provider will usually decide if your property is uninhabitable.
Typically, insurers will cover you for loss of rent if your rental becomes uninhabitable – for example, due to a bushfire or serious storm. However, most insurers will not automatically cover you for rental or tenant default (e.g. if a tenant stops paying you rent). Instead, you will need to add this option on to your policy. In the current cost of living crisis, there's a risk tenants may be unable to pay rent, so it's definitely worth considering.
Choose a policy with rent default insurance available
Remember, rent default cover is also called tenant default.
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How does rent default work?
Rent default can pay you a rental income if your tenant stops paying rent or leaves without giving notice while there's a rental agreement in place.
To be covered, you and the tenant must have a signed written lease agreement that has been in place for a number of weeks (often around 4) before the loss occurs. You can't get rent default cover for casual lets.
In most cases, there will be a cap on how long you can receive rental payments. For example, Budget Direct, CHU, Youi and QBE will pay your rent for up to 15 weeks.
You may also need to pay an additional excess (a payment towards the cost of a claim, often in the region of $400). The amount should be outlined to you by your insurer when you take out cover.
You can't claim twice
An insurer probably won't cover you if you have previously been paid a claim for rent default under the same lease agreement.
Who offers rent default insurance?
We looked at all the landlord insurers available on Finder to see who offers rent default insurance.
Brand
Included
Receive rent default for
Budget Direct
Optional add-on
Up to 15 weeks
Youi
Optional add-on
Up to 15 weeks
QBE
Optional add-on
$15,000 or up to 15 weeks
Qantas
Optional add-on
Up to 15 weeks
Australian Seniors
Optional add-on
The lesser of up to 6 weeks of rent or $2,500
The bottom line
Rent default isn't usually automatically covered by landlord insurers, so you'll need to pay a little extra if you want it included. It's the same situation with loss of rent. If you rely on your rental income in any way, for example to pay bills or for other living expenses, then it's probably worth getting. You can compare more landlord insurance policies here.
Gary Ross Hunter is an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, news.com.au, The Telegraph, Explore Travel and Escape. Gary holds a Kaplan Tier 1 General Insurance (General Advice) certification and a Kaplan Tier 1 Generic Knowledge certification which meets the requirements of ASIC Regulatory Guide 146 (RG146).
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