Whether you are about to purchase your first investment property or are building a portfolio of properties, having the right insurance is essential to protecting your assets and achieving long term financial success.
In addition to home and contents insurance, your investment property will need coverage that includes other factors outside of your control, such as your tenants, their family, friends, pets and any unexpected property damage that occurs.
Despite the importance of insurance being well established, the Australian Bureau of Statistics reports that of the nearly 2.3 million rental houses in Australia underinsurance remains a primary issue for owners and investors.
Since most investment properties serve as valuable income streams through the rental contributions of tenants that investors rely upon to pay down mortgages (among other things) ensuring comprehensive cover is an absolute must.
So, what cover do you need for your investment property?
Tenants who are unable to pay the rent or who cause property damage, both intentionally and accidentally, are unfortunately common and need to be accounted for in any investor’s insurance policies.
A conventional home insurance policy won’t cover these things and, if you have a mortgage on your property, most lenders will require you to have landlord insurance added before you take on tenants.
Any landlord insurance portion of the policy should cover theft, malicious damage and vandalism, loss of rent due to tenant default and the legal expenses required to evict a tenant should things go sour.
Public Liability Insurance
Generally, this covers up to $20 million for the landlord’s legal liability for any incident that has occurred to your rental property and caused significant damage. If the tenant makes a claim and the landlord is found to be legally liable, public liability insurance will cover the landlord for damages awarded to the claimant as well as the landlord’s legal costs in defending the claim.
This type of policy will also cover the damages awarded to the claimant and their legal costs if the landlord is found to be at fault.
Home and Contents Insurance vs Building Only Insurance
Any property furnished by the landlord should have contents insurance, as replacing damaged or stolen furniture is an expensive exercise.
Landlords who rent out an unfurnished property might decide building-only home insurance will be enough to cover the property. However, keep in mind that building-only insurance generally doesn’t cover items like carpets, blinds and other fittings. These items would also not be covered should you have an unexpected flood or fire.
Additionally, typical landlord home and contents insurance policies are unlikely to cover the possessions of the tenant within the property. This is something you should make your tenants aware of, so they too can seek adequate insurance cover.
According to the ATO, your landlord insurance policy premium is tax deductible as an investment expense. So, if you are concerned that the cost of your premiums is going through the roof due to the addition of landlord insurance to your existing policy, take comfort in knowing that the premium is tax deductible.
Ultimately, you want to take all possible measures to protect your investment, but whatever policies you decide on, landlord insurance should be an automatic go-to.
For more information about your specific property and circumstances and what additional insurance you need before you put it out for lease, it’s always best to speak to a professional insurance broker.