Common Mistakes when Insuring your Property
Starting your investment portfolio can feel both exciting and liberating. You’re on your way to financial freedom! Great job! However, ensuring that you are protecting your assets is an essential part of the investor journey, which means that selecting the right type of insurance is a key part of the process. As this can be somewhat tricky given the amount of options on the market, we have identified some pitfalls to avoid when making your choice.
- Choosing the Cheapest Option
With insurance, cheap cover will more likely result in poor value when it comes time to make a claim which is why the focus needs to be on ‘value’ rather than price in this instance. Identify which risks are not covered and choose ones which you’re happy to cover yourself should they eventuate. Most importantly, focus on the specific types of damage which are covered. Some policies will offer malicious damage but not accidental so make sure you ask this question when speaking to your policy provider.
- Watch out for Excesses on Loss of Rent
Each insurance coverage comes with an excess, which is the upfront payment you make before the claim will be paid. In the case of Loss of Rent claims, landlords benefit more on policies which have a nil excess. In an ideal world, the policy also allows tenants bond to be used to pay the excess. Watch out for Insurers who apply an excess equal to four weeks rent which is only applied after the tenant hasn’t paid for four weeks. This situation may render your initial Loss of Rent claim virtually worthless so check before committing to this particular cover.
Underinsurance is where you do not insure your property for its full value, the full replacement cost and instead insure for a lesser amount. While the short term upside is that you may save some money on the premium, the downside is that you risk losing in the long term when it does come time to submit a claim which could be for the whole property, loss of rent or contents if it’s fully furnished. Statistics show that approximately 29% of homeowners in Australia don’t have home and contents insurance, and up to 40% of those who are insured, are underinsured.
There are many potential pitfalls to avoid, so if in doubt, reach out to a trusted insurance advisor for assistance. Remember, insurance is integral to protecting your biggest asset so don’t sell yourself short when it comes to this section of your investment strategy.