Many property investors take out landlord insurance, but they can still run into significant problems if they don't properly understand their cover and the common pitfalls around insurance. To provide some more information about this issue, we've decided to share the following piece by EBM Insurance, which appeared in the July 2013 edition of Century 21's Property Investor.
Watch out! Costly pitfalls landlords should avoid
Common insurance pitfalls could leave unsuspecting landlords hundreds of thousands of dollars out of pocket.
Brent Clarke from EBM Insurance Brokers recently launched a new e-book titled '12 Most Common Pitfalls When Insuring Your Rental Property', which outlines potential traps for the unwary landlord.
"The simple fact that not all insurance is the same makes it extremely difficult to weigh up the benefits of one policy versus another," says Brett.
"After more than 20 years in the industry, I wanted to set down some of the key mistakes landlords make all too often when buying - or failing to buy - insurance.
"Of course, I favour EBM's RentCover, but this book can help landlords differentiate effective from inadequate insurance policies, whether they end up choosing us or not. Often the glossiest brochure or cheapest price wins out and the landlord is left exposed."
Brett cites a recent incident in which a St Kilda tenant "renovated" and expanded his apartment without permission. The tenant cut holes in a concrete floor and wall to access vacant neighbouring units - actions that could well have left the landlord exposed to an expensive damages claim.
In situations like this, where tenants are motivated by a desire for more space rather than spite, policies which only cover 'malicious' damages and not 'accidental' damages may not cover repairs.
To receive the e-book, sign up to receive the RentCover Report – EBM's property investment e-newsletter at www.rentcover.com.au.
COMMON PITFALLS TO AVOID WHEN BUYING INSURANCE
1. Buying on price alone — look for "value" not "cheap";
2. Deliberate fire by tenants — some policies exclude this;
3. Excess — how much? And can the bond be used as payment?
4. Underinsurance — insuring for less than true replacement value;
5. Malicious damage by the tenant — is it covered?
6. Accidental damage — some insurers limit cover to the contents not the building;
7. Check the qualifying (or disqualifying rules) — beware the fine print;
8. Check for complete cover — some combined house and landlord policies offer an inadequate landlord component;
9. Court orders — do you need a court order to claim for rent default?
10. The Body Corporate already insures the property — not for liability if someone hurts themselves inside;
11. Periodic tenancies or lease continuation — some won't pay out for claims if the written lease has expired;
12. Deciding "you don't need insurance" — a reliable tenant and a good property manager is not enough to protect you.
For more information about landlord insurance, head to http://www.ebminsurance.com.au/