You have just purchased your first rental property, which means you need to make sure you are protecting your new asset and the income you are set to derive from it.
A good landlord insurance policy offers extra protection not typically included in standard home and contents policies. Cover, premiums, excess and limits can vary from insurer to insurer, therefore it is important that you find a policy that best protects what is significant; your investment and income.
The following are five common drawbacks you need to avoid as a first-time property investor…
#1 ‘I don’t have enough cover’
Many owners find themselves under-insured simply because they underestimate how much it would really cost to replace their investment property and its contents.
Remember that building costs and standards change, therefore you need to base your sum insured on the amount it would cost to rebuild the property (not on the original purchase price). It is a good idea to engage a quantity surveyor, builder or sworn independent valuer to get an accurate estimate. You also need to factor in other costs such as demolition, debris removal, and architectural, engineering and council costs.
When it comes to content insurance, make an inventory of the contents within the rental and ensure replacement costs are up-to-date.
#2 ‘I have too much cover’
While you don’t want to be half-protected, you also don’t want to be protected for more than you own or be paying for unnecessary cover i.e. you may have brought an apartment building and decide to take out a building policy but your body-corp is likely to already cover the building under a strata title policy.
#3 ‘I’m not covered for that’
You may need a policy that covers ALL depending on your property and requirements.
Many landlords assume they do not need to purchase insurance themselves because they are covered through the body corporate– this is not the case.
The body corporate does not offer protection for unit contents including non-fixed appliances, furniture and electronics, and does not offer protection for loss of rent or legal liability. So, a landlord and contents policy are still required.
Make sure you understand your coverage regarding periodic leases and lease continuations and determine whether your insurer will pay out during this type of tenancy.
4# ‘I just want the cheapest option’
There are many reasons premiums vary from insurer to insurer and policy to policy, including amount of cover, sum insured, excess and limits.
Excess – the portion of the claim you must pay before the rest of the claim is paid – is a big one to look out for… some insurers charge low premiums but high excesses which almost render a claim worthless.
When looking for an adequate insurance policy, it is suggested a decision is based on value and need, not price.
TIP: Loss of rent is a common claim made by landlords, so look out for a policy that has $0 excess on loss of rent claims.
#5 ‘I have a great property manager – they are enough insurance’
Even the best property manager cannot control or predict a tenant’s relationship breakdown or job loss, or an attack by Mother Nature, which is why it is important to invest in extra protection.
**The material and contents provided in this article contains general information and does not take into account your personal objectives, financial situation or needs. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, please contact Peer Wealth on (02) 8014 7608.