For most landlords, an investment property is one of their most valuable assets. Investors rely on their property to generate income each month and many are counting on its appreciating value as a crucial part of their financial strategy. But what happens when things do go as planned? We asked Sarah Jubb from Little Real Estate to explain how property investors can protect themselves from what could be a financial nightmare.
If your rent payments stopped coming in for a significant period of time, could you still pay your mortgage? It makes sense that protecting that income should be high on your list of priorities. Yet many property investors have not secured the right policy for them and they don’t invest sufficient time in making make sure that they have the correct type of cover. It’s critical to protect your asset with the best insurance policy you can find.
It’s also important to remember that not all insurance policies are created equal. Most general home and contents insurance policies will typically cover you for things like damage to the building, some contents like fixtures and fittings, as well as theft, fire, storm and so on. They won’t necessarily protect you against the risks associated with having others in your property.
You need a specialist landlord insurance policy for your building and contents cover. Standard home insurance is not appropriate for an investment property. When it comes to choosing a provider, ask them about the various terms of their policy, such as the elements that are covered and what their excesses are.
Some of the risks investors need protection against:
Your exposure to risk as a landlord comes from two major sources – potential damage to your property and assets and harm to your tenants. Thankfully, the right policy can cover you for all these risks.
Liability – If something happens to your tenants while they’re living in your property, you could be found legally responsible. There are many costs that can be incurred if you are found liable in the event of an incident, including legal fees, medical expenses and more. These can cost you an exorbitant amount if you aren’t adequately covered. Make sure your cover looks after these potential costs.
Rent defaults – In addition to legal expenses, you need to be covered to guarantee your financial security if rent payments stop coming in. Even the best tenants can sometimes experience sudden and unexpected financial difficulties that leave them unable to pay the rent for some time. Examples of hardship could include the tenant losing their job, or being diagnosed with a serious illness. This can leave uninsured landlords out of pocket and potentially unable to pay off their mortgage on the property. It’s important to be aware that the bond may not cover all incurred losses and that the right landlord insurance policy can help protect you against suffering significant financial loss.
Death of a tenant – It is always tragic when a tenant passes away and the situation must be handled with the highest degree of compassion. However, it can also create a range of financial difficulties for a landlord. Having an appropriate landlord insurance policy can assist you with the loss of rent, and help limit any other costs, suffered during this difficult time.
Accidental damage – Damage to property can leave landlords with large repair bills or significant replacement costs. The right policy for you will pay out if your tenant damages your property.
Pet damage – Pets are a wonderful part of life, but they can be problematic for your investment property – and at times you may not know they’re there. Some policies will protect you from having to bear the cost of damage caused by pets. Make sure you pick a policy that’s pet-proof.
Water damage – A huge proportion of landlord insurance claims are made for water damage caused by a burst pipe or leaking appliance. Some insurance providers have separate and much higher excesses on these kinds of claims than your standard excess. It’s important that you stay mindful and ensure your policy looks after your risks.
Water damage to the contents of a rental property is also a very common insurance claim, and it could be caused by the tenant or faulty appliances and fittings.
As a property investor, you should check the extent to which policies cover storm, flood and general water damage and build an understanding of any cover exclusions before choosing an insurance policy.
Fire – If there is a fire in your investment property, it can spread quickly within minutes and have a devastating impact. Some policies will not cover you if the fire is started deliberately and, unfortunately, sometimes this can result in terrible financial losses and significant emotional strain. You should find coverage that protects you from this risk.
Of course, these are only some of the considerations that property investors should investigate when insuring their valuable asset. There are many available resources to help you ensure you’re effectively insured.
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General Advice Warning: The advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice, in light of these objectives, financial situation or needs, before following the advice. We recommend that you speak to your accountant and financial adviser to help you determine whether direct property investment is right for you.