When buying an asset such as a house you often think about ways to protect it with home and contents insurance. It is equally important to consider suitable types of insurance when you have purchased an investment property and about to lease it to tenants. One of the most useful property investment tips is to consider landlord insurance as a great way to make sure that you are protecting your asset, as well ensure that you are covered in the event of unforseen circumstances such as a tenant defaulting on the rent.
What Does Landlord Insurance Cover?
Like any insurance product, the details of coverage will vary depending on the type of policy you take out and who you choose to use for your insurance – the majority of banks and other financial institutions offer landlord insurance, and you can also find specialist companies who focus on this type of product. In general, you should look for landlord insurance that provides as much protection as possible in the following areas:
- The building. As long as your premises are used primarily for residential purposes, this will protect the building against damage or loss brought about by your tenants, their family or their guests. This usually will cover accidental damage (for example, broken windows or kitchen tiles), pet damage, theft or malicious damage. Another property investment tip is that when you look into the policy you should ensure that you read the fine print and know exactly what it includes (and excludes) inside and outside your property.
- The contents of the building. Your investment property will likely come with a range of fixtures and fittings, including carpets, curtains and blinds, timber floorboards, light fittings and electrical appliances. Good landlord insurance that covers the contents of your property should protect you in the event of a number of circumstances such as accidental or malicious damage or loss, storm, rainwater or flooding, fire damage and pet damage. Some insurance policies will also protect the contents of your property against what is sometimes referred to as an “act of god”, including lightning, earthquake or catastrophic storm[i].
- Loss of rental income. While defaulting tenants or people who leave in the middle of the night without paying their rent are rare, it is always better to take steps to minimise your risk as an investor as much as possible. Other unforseen circumstances that may mean in the loss of regular income from rent include being unable to rent out the property if damage has occurred, the death of a tenant, or the failure to give vacant possession. Landlord insurance will generally protect you in these cases, paying you a certain amount depending on the amount of rent payable and time limits applied in the policy.
No one wants to buy an investment property only to stay up at night worrying about issues that may or may not happen. As the cost of landlords insurance is tax deductible, it is a cost effective and sensible way to give property investors security about their future and a level of protection against potential damages or financial losses.