Unsuspecting property investors can be left out of pocket by thousands of dollars by falling victim to several common insurance pitfalls. The simple fact is that not all insurance policies are the same with lots of fine print which makes it extremely difficult to weigh up the benefits of one policy versus another.
People often spend more time choosing a flat screen TV than insurance for a rental property worth hundreds of thousands of dollars. Being proactive as opposed to reactive can save you much heartache and stress if the unexpected occurs.
When it comes to getting the right cover, often the glossiest brochure or cheapest price wins out and the landlord is left exposed. Begin by asking the right questions and it''s just as important to work out what isn''t covered as what is. Often, the difference between a good policy and a poor policy may only be a few dollars with the poor policy costing you thousands in the event you need to call upon it. It really is not worth the risk going for the cheaper option.
Some policies won''t pay out on claims when a fire is deliberately started by a tenant, if the property is on a month-to-month lease or accidentally damaged by a tenant. Other issues to consider include the company''s reputation - what do their customers who have had to make claims have to say about them? We live in a referral and review world so always ask to speak with a past client and always google search for any possible online reviews.
In no particular order, here are some pitfalls to help landlords differentiate effective from inadequate insurance policies:
Buying on price alone. Look for 'value' not 'cheap.'
Deliberate fire by tenants. Some policies exclude this.
The Excess. How much, and can the bond be used as payment?
Underinsurance. Insuring for less than true replacement value.
Malicious damage by the tenant. Is it covered?
Accidental damage. Some insurers limit cover to the contents not the building.
Check the qualifying or disqualifying rules. Always beware the fine print.
Check for complete cover. Some combined house and landlord policies offer less cover than specialist landlord policies.
Court orders. Do you need a court order to claim for rent default?
In multi-unit sites. The belief that the Body Corporate / Owners Corporation already insures the property for liability if someone hurts themselves inside.
Periodic tenancies or lease continuation. Some won''t pay out for claims if the written lease has expired.
When you figure out 'you don't need insurance.' Don't leave things to chance. A reliable tenant and a good property manager are no guarantee of full protection.
The above is just a small shortlist of the go wrongs and pitfalls when considering insurance policies. Be sure you are armed with the right questions and when answered be sure they are in a written format or email. Hopefully you are never placed in a position to warrant the use or call upon your landlord insurance policy, however in the event you do, you are comfortable in the knowledge that everything will be taken care of with the least amount of inconvenience.
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