Landlord insurance can offer peace of mind, but it can also end up being just another insurance policy to pay. We weigh up the pros and cons.
The case for
■ Having an investment property in your portfolio is about building wealth for the long term. As with insuring your home or your income in case something goes wrong, it can be prudent to take out insurance for the investment property as well.
■ Landlord insurance can cover a number of different problems that can arise with your property. Depending on the policy you buy, you can cover a tenant defaulting on their rent, damage to the contents of your property and protection for your contents. Any of those can run into a substantial sum of money.
■ By far the majority of tenants are good and will cause you little trouble. But you may be unlucky and find one who badly damages your investment unit or house. It’s of course too late after the damage has been inflicted to say you wish you had taken out insurance. If a tenant badly mistreats your property, it may mean it is off the rental market for weeks or even months, costing you rental income.
■ Like many costs associated with investment properties, landlord insurance can be claimed on your tax – it offsets how much you are out of pocket.
■ There are a number of insurers that offer landlord insurance. So if you shop around you should be able to get a competitive rate for your investment property. Most insurers have websites and some even have calculators so you can get a good idea of how much it is going to cost. You could also check with your real estate agent to make sure you are getting the right level of cover.
The case against
■ It is another item you have to include in what is probably an already stretched budget. Depending on the level of the cover, you will probably be paying $350 or more a year. Many investment properties only make a slim profit and this may make it a loss-making operation. That’s money you can’t invest elsewhere.
■ Even with the simpler language now used in the insurance industry – and on insurance policies – you may find it hard to follow exactly what is covered in your landlord policy and what is excluded. You may think you are covered by an incident at your property only to find you will have to foot the bill for the repairs.
■ An important part of a real estate agent’s job is to weed out potentially bad tenants. You may be paying about 7 per cent in management fees. If agents are not screening tenants properly, they may be failing in other areas as well, such as regular and detailed property inspections. You may feel that paying for an agent as well as landlord insurance means you are being double-charged for your property.
■ It can be easy for investors to get into a habit of paying landlord insurance annually without analysing if the policy is still appropriate for the property. You need to consider whether it is aiding your investment strategy or if paying the premium each year has become a matter of course.
■ Insurers vary widely in terms of the speed with which they handle claims. Just because they are prompt, courteous and efficient when it comes to taking your payment in the first place does not mean they will be the same when they are processing your claim.
Si Verdict: The risks are too high to be without landlord insurance. While it is another cost you have to meet, a serious problem in your investment property can set your retirement planning back years, if not derail it altogether.