Not all insurance policies are the same, especially when it comes to investment properties. Whilst most people would be familiar with house and contents insurance, landlord and property insurances are slightly different. Landlord insurance is essential (in addition to building and content insurance) if your property is tenanted – regardless of how reliable your tenants are.
Here are a few things to consider when insuring your investment property:
Shopping around and considering different policies is the first part of the insurance process, but the key to saving big dollars in the long-term is doing a quick price check prior to your insurance renewal date each year. Set a reminder in your calendar a couple of weeks before your insurance is due to allow enough time to scope the market. Insurance companies rarely reward loyalty, and things change over the course of a year, so you might find a better deal if you consolidate a few insurance policies (such as your car or your own home and contents) with one insurer. A simple spreadsheet will help you quickly compare each policy, and can be updated again next year.
No two properties are the same, so no two insurance policies are the same. If you already have an investment property, or have owned investment properties previously, don’t assume subsequent policies will have the same insurance requirements. Policies will vary depending on location and property type. For example, policies for apartments in a multi-story building or complex are very different from houses as the building insurance for apartments is often covered within the body corporate (double check this though, as body corporate varies in every building).
Landlord insurance can be purchased separately to your other insurances, or bundled together with your building and contents insurance. Consider your options so you can select the most appropriate option for you and your property.
NOTE: Not all insurance companies will offer policies for self-managed properties.
Outstanding rent is just one risk landlord protection insurance covers. There are a number of other things that can go wrong with tenants and your property, such as:
Malicious damage inflicted by tenants. Tenants (or their guests) can inflict considerable damage to a property through vandalism or burglary. This can happen easily if a tenant throws a party and things get out of hand, resulting in damage to your property and its contents.
Accidental damage to contents such as appliances, flooring, lighting, walls, etc. can easily occur if the tenant floods the bathroom or burns something on the stove, for example.
Fire, floods and storms e.g. a tree falling on your property in strong winds and damaging the roof. Coverage for this can vary by state and location, so be clear about what is included with this part of the policy.
Injury. Liability cover is also another essential aspect of your landlord insurance. If a tenant injures themselves on your property, you need to be covered if they take legal action.
Rental strategy. Should you change the strategy of your investment property from long to short-term rental, ensure this is reflected in your insurance policy. If you think you might want to switch strategies, keep your options open with a flexible insurance that allows for this.
If you need to make an insurance claim, it is important you know what your responsibilities are as a landlord before you proceed with a claim. For example, if your tenant owes you rent, how many warnings do you need to issue in writing, and over what time period? Ensure you have covered all the details required in the fine print of your policy to ensure a timely and successful claim.
Whilst insurance is essential and can’t be avoided, there are a few things you can do to keep your premiums at a minimum:
Source your tenants carefully
Vet potential tenants for your property with the utmost care. Follow up on references and be confident with your tenant selection. Your property manager is a valuable resource when selecting tenants as they will spot any potential issues.
Ensure your tenant is aware of all lease conditions and sets up a direct debit for rental payments.
Conduct regular property inspections so you can get on the front-foot with any issues before they arise.
Develop and maintain a positive relationship with your tenant. Be respectful of your tenant’s requests and ensure any maintenance issues are resolved promptly to keep your tenant on-side. Even the most honourable tenants may fall on hard times due to job loss or relationship breakdown, so always try to be empathetic and work with them to ensure they meet their rental payments.
TIP: Your property manager will have knowledge of various insurance companies their clients use. Property managers are an excellent source of advice on the pros/cons and experiences their other clients have had with these companies so if in doubt, reach out.
Whilst annual insurance fees can sting at the time, remain focussed on the financial value of your property and the peace of mind insurance of these assets assures.