Do you know what cover you will need for an investment property?
Owning an investment property is part of the wealth building strategy for many Australians and like any investment you need to be aware of the risks associated with it and take steps to mitigate those risks as much as possible. If you own, or are thinking of buying an investment property you need to be aware of the different types of insurance that are available to help mitigate some of those risks.
The following is a list of the different types of insurance that are available;
This insurance covers the actual building/s on the property in case of damage or destruction. These types of policies are usually for an agreed amount, so when considering this type of insurance you need to consider the worst case scenario of total loss, the total cost of demolition or removing the rubble, site preparation and then rebuilding an identical or similar home of the same specification and size as what was there prior.
Many property investors think they don’t need contents insurance as it would be up to the tenant to cover their own possessions. That is true to an extent, however carpets, window dressings and any other non-fixed item that you provide in the property are classed as contents so you will need to consider a small contents policy to cover those items at replacement cost. This cover can usually be bundled in with the building policy at very little extra cost.
This is the cover that many property investors fail to take out or are unaware it is available. Landlords insurance is a policy that is available at quite reasonable cost and protects the landlord for a range of events that usually involve the tenant. Events such as malicious damage, tenant theft, loss of rent if your tenant does a runner and even tribunal costs in certain circumstances. Unfortunately not all tenants will treat your home like their own so this cover should be considered vital.
Insurance is usually a ‘grudge’ purchase, particularly if you have never made a claim before, so people naturally buy on price alone. But insurance, like everything else, is a case of you get what you pay for, so those cheap policies are usually cheap for a reason. Since most people don’t take the time to read their PDS to ascertain exactly what events they are insured for, it’s usually not until you need to make a claim that you find out that the policy was cheap for a reason and the insurer takes great delight in declining your claim.
The silver lining to this is that premiums paid to insure your investment property are tax deductible so you will get a percentage back equal to your marginal tax rate.
If you would like to learn more about insurance, please call Bernie Lewis on 8300 8300 to speak with a qualified adviser.
The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone's personal situation is different, this article should not be taken as advice.