There are very few investors who can afford to cover all potential risks themselves. None of the investors I know, for example, could afford to rebuild their entire property after a fire. Most would struggle replacing just carpets and curtains. Damage happens – the trick is to make sure it doesn’t hurt your finances as well as your property when it strikes.
Many companies offer landlords insurance to soften the blow. These policies come in a wide range of shapes and sizes. They range from relatively inexpensive to very expensive. How, then, do you chose the best policy? It’s important to look at what you need from the insurance first, and cost second. Here’s our list of top features to look for:
- Full replacement value and partial damage repair for the property, including fixed appliances, wiring, gas and plumbing, fixtures and fittings inside the house. Outside the house, make sure external features like carports, retaining walls, pipes and cables, and awnings are covered.
- You will also need contents insurance. This should cover carpets, curtains, light fittings, etc. You don’t need to cover tenants’ belongings – they should have their own contents insurance.
- Coverage for all eventualities. This includes earthquake, fire, tsunami, flood, civil unrest and riots. Get covered for as many of these as you can. Many investors in Christchurch, New Zealand, thought they’d never need to claim for earthquakes, and were proven very wrong.
- Intentional/malicious damage. This isn’t often covered on standard household insurance but, as many landlords will tell you, it is worth having. One wild party or angry evicted tenant can wreak havoc on your investment and one methylamphetamine lab can cause tens of thousands of dollars’ worth of clean-up costs.
- Loss of rent. Look for a plan that covers you when a tenant stops paying rent. Think about what would happen, for example, if your tenant defaults. Or dies. Or if you need to ask them to leave in order to make repairs to your building after a storm – would your insurance pay tenants’ hotel costs? In Christchurch, whole streets were cordoned off and deemed unsafe – would your insurance cover rent in this case? For how long? Check how long you will need to wait before your insurance kicks in – often there is a four week stand-down time.
It’s also worth thinking about how easy it is to lodge a claim, how useful the customer service is, and whether there are incentives like no-claims bonuses or discounts for multiple policies.
LMI (Lenders Mortgage Insurance) is an insurance protecting the bank in case you default on your loan. It is usually required when you borrow more than 80% of the value of a property.
Life, health and income insurance
If your property is held jointly, or if it is negatively geared, consider life, health and income insurances. You should get enough cover to protect yourself, any surviving partners or your estate from the possibility of default on your loans.
With insurance, research can save you money on premiums in the short term and huge heartache in the long term. We can help you with this research. If you chose to go it alone, think carefully about what you might need. It’s not always about what’s most affordable now – it’s about what cover you can’t afford to be without.