Managing Risk

Monday, February 20, 2012

There are three main areas which we consider are pertinent to reduce the risk exposure when leasing a property. These are; to have and maintain the property in good and reasonable condition, to appoint a property manager and take out a comprehensive landlord insurance policy. Insurance is an expense that some landlords try to avoid in order to reduce costs. You don’t get anything when you pay the premium, the true value of course is realised when you have a claim and you have the security of knowing you won’t have to worry about where the money will come from to cover the loss.

Although Landlords cover is extremely crucial to investors, less than half of landlords in Australia have landlords insurance. When it comes to insurance, being an owner-occupier is quite different from being a landlord. Most landlords agree that bonds are not enough to cover some of the damages and incidents that can happen. Of course, not all tenants are bad, but you do need to make sure you are covered should something go wrong.

A typical home and contents insurance or even strata title insurance will not cover some particular risks associated with renting out a property. Two of the most significant risks landlords face are malicious or intentional damage by tenants and failure to pay rent. Landlord insurance cover can cover for damage arising from deliberate, intentional or malicious acts to the building or contents by the tenant as well as tenants default which covers you the landlord for loss of rent payable by the tenant. Landlords insurance can also cover for hardship of a tenant or even the death of a sole tenant.

It's important to remember that not all landlord protection policies are the same. Some, for instance, are designed to be taken out in addition to a typical home and contents or strata title policy, while others are more comprehensive. When choosing an insurance policy, you should give careful consideration to ensure it contains clauses specific to your needs. The most common risks for a landlord are malicious damage by a tenant, theft, accidental damage, legal liability and loss of rental income.

Before buying any insurance, however, keep in mind that different insurance companies - and even different policies from the same companies will vary. Also, different insurance companies may call the same type of insurance by different names. You must discuss the terms of any policies you buy with your insurance agent. Don't hesitate to ask for definitions when you need them.

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