Expert Advice with Ken Raiss. 03/11/2017
Insurance is one of those things that some people mistakenly think isn't worth the cost.
Unfortunately that's why too many people choose not to take out appropriate insurance cover to insure their assets as well as their incomes.
Thankfully, when it comes to insuring their homes, most Australians wisely choose to do so.
And for strata-titled properties, building insurance is included in your quarterly owners corporation or body corporate fees so owners just need to ensure they have adequate cover for their property's contents.
One specific type of insurance is not on the radar of all property investors – but it should be.
Landlord insurance covers property investors for a variety of events that can result in a financial loss to you.
Plus, it's tax deductible, too.
While landlord insurance policies can and do vary, there are a number of inclusions that are usually standard or optional extras.
1. Rental loss
You can insure your investment property for loss of rent, but that doesn't mean during periods of vacancy.
Rental loss is when your property is damaged, perhaps by a storm, and it is uninhabitable for a period of time.
You can insure your property for such an event, but you must be able to provide evidence of everything, including the exact rental loss that you have experienced.
2. Rent default and theft
Unfortunately sometimes a tenant's financial or personal circumstances change and they can morph from an ideal tenant to a worrisome one.
Sometimes they may stop paying the rent and then one day your property manager informs you that they've skipped town.
A landlord insurance policy can cover you for rent defaults in such a circumstance.
It can also provide coverage for theft, such as if that tenant also took white goods with them, because your property was partly or fully furnished.
3. Malicious damage
During your property investment journey, your portfolio will need to be constantly maintained because of the wear and tear of tenants living in them.
Of course, tenants are protected from paying for normal wear and tear under the relevant legislation.
But sometimes damage can be done to your property that is not normal – in fact, it's malicious or even vandalism.
Perhaps your tenants hosted a party that got out of hand and significant damage to the walls was sustained.
In that instance, unless your tenants are prepared to pay to have the damage remedied (but you've probably given them notice to leave anyway), you can claim for your financial loss through an appropriate landlord insurance policy.
4. Legal costs
An investment grade property, as well as a professional property manager, should reduce the chances of you ever having to have legal representation, but sometimes bad things happen to good people.
Many landlord insurance policies can provide additional cover for legal expenses that are incurred in remedying an issue with a tenant, such as attending a tribunal hearing or retaining legal counsel.
5. Public liability
One of the most significant benefits of landlord insurance is its public liability cover.
Most policies should provide cover, up to about $20 million, which insures you against events such an injury or death that occurred at your property.
This is insurance for you as the owner if the tenant or a visitor injures themselves, or worse, at your property and decide to take legal action against you.
The bottom line is that landlord insurance should be an automatic part of every property investor's portfolio.
It's always advisable to double-check the fine-print to ensure the policies covers you for the basics, plus any additional extras like flooding in Queensland.
While landlord insurance policies do vary, they usually only cost a few hundred dollars a year, which is a very small price to pay for peace of mind, don't you think?
Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.