Investing in a rental property can provide you with a positive cash flow and an asset whose value will increase. However, it can also come with potential threats.
As a landlord, you risk having poor tenants who could damage your property, make late rent payments, or fail to treat the property with respect and receive complaints from neighbors.
Homeowner insurance can help you cover losses related to your rental property. This is an insurance specially designed to protect against the risks that most homeowners may face.
Although it is not a legal requirement, many property management teams now require owners to be covered by insurance before acquiring new property. According to the Real Estate Institute of New South Wales, it is now common in the industry for property managers to discuss the financial risks that a new owner may encounter and to provide instructions on how to manage those risks with an insurance policy. complete for owners.
Homeowner insurance generally includes coverage for the following:
Fire
Flight
Loss of rent
Legal responsibility
Vandalism
Flood
Emergency repairs
Earthquake
Why you may need it
Homeowners insurance provides protection for property owners and managers. This can minimize risk for everyone and can make it easier for you as an owner. Some of the benefits you could have with a homeowner's insurance policy include:
Coverage of rent losses. The loss of rent accounts for more than half of homeowners' insurance claims, according to Carolyn Parrella, general manager of Terri Scheer Insurance. With homeowner insurance, you may be able to claim the loss of your damaged property.
Coverage for loss of rent can only apply if a property is habitable. You may also need to collect proof that your rental is damaged and needs to be covered.
Coverage of material damage . Some owner's policies may cover payment for property damage. They can cover the damage that buildings and contents can have due to natural disasters. Some policies may also cover malicious damage that tenants can cause, such as vandalism.
Protection against liability. Homeowner's insurance can protect you and your rental property from personal injury or death that may occur on your property.
For example, if a tenant is seriously injured, he can sue you – the owner – for damages. Your homeowner's insurance can cover this.
Emergency coverage . Some homeowner insurance policies may provide emergency coverage. You may be able to claim incidents such as leaks or accidental locking out of a tenant.
Emergency coverage may also include the costs of traveling to and from the facility to resolve a problem.
Coverage of legal fees . No one wants to incur thousands and thousands of legal fees. Homeowner's insurance can cover legal costs you may incur when resolving legal issues with a tenant.
Home insurance is NOT homeowner's insurance
Many investors may think that their home insurance is sufficient to cover their rental property. However, this is not always the case. Home insurance will generally not protect you against loss of rent and malicious damage caused by tenants – coverage offered by landlord insurance.
Here is the damage or loss that both home and owner insurance can cover:
Fire
Thunderstorm
Flood
Impact
Legal responsibility
Water damage
However, ONLY homeowner insurance can provide coverage for the following damage or loss:
Loss of rental income
Legal costs of eviction
Malicious damage
Accidental damage
You may not need an additional home insurance policy if you already have building and content insurance as part of your homeowners insurance. However, if you only have tenant protection, which does not protect you from damage or theft in buildings, you may need additional insurance for buildings or content assurance.
Average costs
Homeowners insurance can cost as little as a few hundred dollars a week. However, this cost depends on the state of your rental property. Some considerations that can be taken into account when calculating the cost of your homeowner's insurance include the risks associated with your property, local crime and natural disaster statistics that may locate your rental property.
The optional benefits covering vandalism, theft by tenants, fixtures and fittings can also affect the cost of your homeowner's insurance.
Here are examples of owner insurance costs from various suppliers, as of December 2019:
These calculations were done using online calculators from owner insurers. For a cost estimate that you may have to pay for your policy, contact your preferred provider.
Some of the country's homeowners are:
Choosing the best homeowners insurance
Homeowner's insurance may seem like only an additional cost for your rental maintenance and management fees, but it is a policy that can help you protect your investment from future problems. To choose the best policy for you, consider the following:
Evaluate the coverage you may need . Consider your property, its value and its contents when deciding what features you want an owner's insurance policy to have. Do you need a blanket for construction only? Do you need a blanket for the building and its contents? The features or benefits you want for homeowner's insurance can affect the amount you have to pay, so think about it carefully.
Go around the store . Compare the insurance of owners of various providers by examining the coverage and benefits offered and their estimated costs. To do this, you can consult the owners' insurance calculators of the suppliers and obtain an estimate. You can create a checklist to compare different suppliers.
Example of comparison checklist:
Consider the location of your property . The location of your rental property also affects the amount you need to pay for homeowner's insurance. If your property is in an area prone to natural disasters, you may want to take this into account when choosing a policy. It also means that you may have to pay a little more for homeowner's insurance.
For example, you have rental property in a flood-prone area like Queensland; this will be taken into account when a provider calculates the amount you have to pay for a policy.
Homeowner insurance can benefit you and your investment portfolio because it protects you from future problems with your rental. It has become common practice due to the risks of liability and damage to an investor's rental which can result in financial loss.
Talk to an insurance agent about your options and discuss what is best for you and your property.
Always check the fine print to make sure your homeowner's insurance covers the basics and any additional arrangements you require. Some additional coverage provisions you may want to consider include building codes, burglaries, rental property under construction, or damage caused by pets.
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