Read the fine print to make landlord insurance work for you

Be prepared for every contingency with your investment property

 

Owning an investment property is often cited as a major step on the road to wealth creation, but they are not always incident-free.

 

The first certainty about investments is that things can and will go wrong, so it is important to be prepared.

Plumbing pipes can burst, pets can inadvertently wreak havoc and thousands of dollars of damage can be caused by tenants accidentally or intentionally.

Worst still, repairs can leave you exposed to rental shortfall as the repairs are made as well as incurring the out-of-pocket expenses.

 

That’s where landlord insurance can provide peace and mind – and all for less than the price of a cup of coffee a day.

Yet relatively few - less than half of the nation’s estimated 2.6 million investor-owned dwellings across Australia according to CoreLogic - take up the chance to properly protect their asset.

It’s true that there is no legal obligation to possess a landlord insurance policy, but some lenders will insist upon it before tenants can be accepted in your property.

The tax-deductible expense typically provides protection should your tenant fail to pay rent, break the lease or severely damage the property inside and out. It may also give cover from personal injury lawsuits from tenants, and damage caused by storms and fire.

 

As with any policy, it’s best to always examine the fine print in the Product Disclosure Statement to determine the coverage and any loopholes that may compromise the long-term viability of your asset.

When choosing landlord insurance, determine the cover needed, what excess to pay for claims, the loss of rent you can sustain, and ensure your coverage includes tenants and any specialised insurance.

Online calculators are available to calculate what coverage is needed (and reviewed annually) to avoid being underinsured for rebuilding, repairs or replacing belongings.

Insurance premiums vary, but check the extent to which you are covered for storm, flood and general water damage to your property, and to understand any exclusions of cover.

For example, QBE reports that severe weather (34 per cent) and leaky pipes (21 per cent) are the cause of far more insurance claims than tenants failing to pay the rent (12 per cent) and theft (10 per cent). Yet Terri Scheer reports that rent default accounts for more than a third of its landlords’ claims - followed by malicious and accidental damage, water damage, and tenant death.

Being proactive with maintenance - following a documented checklist and promptly attending to any issues - can also help avert issues. This should include regularly clearing gutters and encouraging tenants to immediately report if they have concerns with safety or security at your property, inside and out.

 

Other aspects of protecting your investment include using quality tradespeople for prompt repairs, and knowing your legal obligations in terms of requests, inspections and obligations.

If you lease your property through a real estate agent, speak to your property manager for their recommendations. Start by getting three quotes from different insurers and see what they cover and for how much.

Each policy will vary, but property managers can be invaluable in helping you with your selection of the myriad policies available.

 

For example, Mozo’s 2018 inaugural Experts Choice Landlord Insurance Awards, voted Budget Direct, ING, Westpac, Woolworths and RAC among the winners in the Value category. And ANZ, CommInsure, Westpac and RACV filled the top spots for the Exceptional Quality award.

 

Similarly, Your Investment Property magazine voted Terri Scheer as its best policy.

 

Treat your investment as a business proposition, including minimising risk, if you want the best possible returns. Then you’ll be well on your way to financial freedom.

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