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Landlord insurance: be ready for any circumstance

Jun 2, 2016 12:00:47 PM

iStock_000033584728Small.jpgMany may consider landlord insurance unnecessary, confident that only the best tenants will emerge from a stringent selection process to lease their property.

And with good tenants, what could possibly go wrong with your investment – right?

Time to take a cold shower and consider this carefully. Or how about take a refreshing bath?

A very good tenant, in an apartment building, fell asleep while pouring a bath. The water not only flooded their unit, but seeped through the floor, damaging the ceiling, carpets and electrical appliances in the apartment below.

Because the owner of the apartment took out the right landlords’ insurance, he was able to quickly repair the damage to his own unit. He was also able to claim the excess payable as a tax deduction.

The owner of the unit below had no insurance, leaving their only course of action to sue the tenants upstairs, seeking to recoup costs for repairs.

Whether it be a house, unit or townhouse, an investment property is often among the most valuable assets anyone will own.

The importance of taking out landlords’ insurance was borne out by a recent survey which revealed that two out of five landlords had experienced tenants damaging property or defaulting on rent in excess of the value of the bond*. 

While standard house and contents insurance will cover such events as theft, fire or various natural occurrences, landlord’s insurance is specifically designed to protect the landlords’ investment.

For example, landlord insurance can cover you for:

  • Malicious or accidental damage by tenants or their guests
  • Vandalism
  • Damage caused by structural alterations to the building without your consent
  • Theft by tenants or their guests
  • Legal action if taking action against a tenant
  • Liability for a claim made against you
  • Loss of rent if the tenant defaults on their payments or leaves early.

The same applies to investment properties that are units or townhouses, although existing body corporate insurance may already cover you for building and legal liability for public areas. Check with your body corporate to find out what existing insurance policies cover.

As with all types of insurances, the cost and conditions of different landlords’ insurance policies on the market differs greatly, so take the time to talk with your Harcourts Property Manager about finding an insurance policy that suits your specific property.

It is important to buy an insurance based on its suitability rather than price, and to clearly understand which is included and what is not.

For example, some policies will cover only “malicious” damage made by tenants and not “accidental”. Often there are strict conditions that apply to covering default rent payments.

If you rent out a fully or partly furnished property, you may also need to add contents insurance to cover items such as whitegoods, furniture or appliances. There are many other factors to consider.

The good news is, insurance premiums and any excess payments are tax deductible.

Yes, landlord insurance will cost you a small amount each year, but it will save you from sleepless nights wondering what will happen if the unexpected becomes reality.

* (Source: Home Insurance Comparison).

Topics: Investment Property, Landlords, Advice, Insurance