10 common mistakes to avoid when insuring your Brisbane rental property
Landlord insurance is definitely something to consider for Brisbane rental properties. But it can be confusing. This type of insurance covers the building itself, with the option of insuring any contents that belong to you. At times, trying to discern which policy has the most cost effective solution can seem like a whole lot of jargon and a blur of numbers. To assist you to choose a landlord insurance policy, we’ve put together a list of some of the key mistakes to avoid when assessing a policy.
1. The cheapest policy will do.
Like any business, insurance companies need to make a profit. They do this by paying out less in claims than they collect in premiums. Although your choice of insurer will consider the price of the policy, price alone should not determine your choice. Cheap cover is likely to represent poor value.
When you pay too much you may lose a little, but when you pay too little you may lose a lot.
It is much better to hunt for good value than it is to hunt for the lowest price. Good value is represented by the policy that comes with the most relevant cover at a cost you can afford.
2. I don’t mind a little bit of excess.
Excess, which is the portion of the claim you must pay before the rest of the claim is paid, is often seen as a necessary evil. However, some insurers charge extremely high excesses which may almost render a claim worthless.
There are certain types of excess you definitely need to watch out, like policies that charge an excess on “loss of rent” claims. Typically, policies that have a nil excess on loss of rent claims will be far more beneficial.
Keep your eye out for policies that allow the rental bond to be used to pay the excess. This can be a great advantage to investors insuring their Brisbane rental properties.
3. I think my property is worth this much…
The value of a successful investment property is in the building, applicable contents, and the income it generates. Therefore, it simply does not make sense to try to save a few dollars on the cost of your policy by under-insuring your investment. Take the time to properly assess the replacement value of –
the whole building
the income from rent
to determine an appropriate insured value for your investment.
Also remember that generally, your insurance for your Brisbane rental property is tax deductible.
4. My policy definitely includes cover for all types of damage.
Be very careful. Damage to Brisbane rental properties can be classified as either “malicious damage by the tenant” or “accidental damage”. And the difference between these two classifications can greatly impact on how much you may receive from a damage claim.
Malicious Damage by the Tenant may not be covered by all policies so it is very important to check. In addition, make sure you carefully review the limits and excesses as these can vary greatly between different insurers. To submit your claim you will have to prove that the damage was malicious. This requires a police report, and technically you may need to prove that a tenant caused the damage with malicious intent, meaning that their sole aim was to cause damage to the property.
Accidental Damage is a little more broad and requires less paperwork than the above.
Things to watch out for in the Terms & Conditions when reviewing damage cover – is there a limit to contents cover? Will you need a police report? Will you need to prove that the damage was malicious? Does the cover apply to both contents and the building? Is deliberate fire by tenants covered?
5. I skimmed the fine print and the qualifying criteria for claims.
Some insurers will make putting a policy in place very technical with very specific fine print. For example, some insurers will restrict or deny claims by putting in the fine print a requirement that tenants not have been in arrears at any stage during the preceding two months where a breach notice could have been issued.
Avoid any nasty surprises by looking for a policy that keeps it simple. It’s always a good idea to take the time to read the Terms & Conditions carefully and to seek help if you do not fully understand a clause.
6. I have the highest level of cover so I can claim for anything.
Policies vary in the way that they cover Brisbane rental properties. If you have a house you may need two policies – a building defined events policy and a landlord policy. It pays to understand what you actually need as some of the combined policies available in the market may fall short when you try to make a claim. Always be careful when considering a combined policy and ensure that the landlord policy is not simply a pumped up household policy.
7. I will always be able to make a claim for loss of rent.
Beware policies that talk about long periods of rent loss being covered simply for ‘default”. On close inspection you are likely to find that court orders are required for anything other than the most basic periods. While this can be workable, it’s best to know this upfront so that you’re aware of the policy’s limitations.
8. The type of lease doesn’t affect my policy.
Most landlord insurance policies require the tenant to (at least) have initially been on a written lease and most likely for a fixed term. This requirement is included in most policies as there needs to be some sort of written agreement in place for the tenant to be deemed as having done something wrong.
In more recent years there has also been an increase in some claims not being paid as the written lease has expired, with the tenants simply rolled on to a “periodic lease” or “lease continuation”. This could be a major problem so ensure you understand your policy requirements. If your policy does require a fixed term lease it is important to give timely instructions to your property manager when the time comes for lease renewals.
9. The Body Corporate insures my property so I don’t need to.
This is simply incorrect.
The Body Corporate insures the common property for apartments and townhouses but everything internal in your property won’t be covered. For example, the Body Corporate insurance will cover things like common driveways but won’t cover your living room walls.
Essentially, as soon as a tenant steps inside your apartment or townhouse, the Body Corporate insurance policy no longer applies. A significant risk to landlords is that of liability. Should someone injure themselves inside your property you may be liable to pay legal bills, medical bills etc. It is critical to consider liability cover when choosing a landlord insurance policy.
10. I don’t need insurance.
Insurance may be a “grudge buy” as nobody wants it but many feel they have to have it. However, it can be a lifesaver when circumstances turn bad. Landlords who feel they don’t need it because their tenant has always been good are putting the future of their investment to fate. No one knows what tomorrow will bring and that is why we have insurance.
When reviewing landlord insurance policies make sure you take the time to weigh up your options and to seek help if you need it. After all, your property investments can be expensive to repair, rebuild, and/or replace.