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Investment Property Insurance - Protecting Your Real Estate Investment

It may seem like there is no end to the decisions that will need to be made when investing in property. 

A lot of time is spent choosing the right property and suburb, selecting a property agent and tenants, or picking the best lending options. 

While all of this is important, there is one decision that can easily be overlooked or not given enough time and attention: investment property insurance. 

Many homeowners won’t actually insure their property as the price can be high, especially when stacked on top of all the other costs involved in owning a home.

But not insuring your investment property can leave you at risk financially in particularly challenging circumstances. 

We can’t always predict what is going to happen, so making sure your finances are protected against a range of circumstances is really important.

I’ll go through the main types of property insurance, as well as a few other reasons why it’s so important and when it could come in handy. 

What Are The Different Types Of Property Insurance Available?

There are a few different types of property insurance, so it’s important to have a good understanding of each so that you can make the right decision when it comes time to purchase.

Landlord insurance is particularly important for investors.

Landlord protection insurance will usually include both building and contents insurance and a range of additional coverage options that are specifically tailored for landlords.

This can include (depending on the policy) coverage options for:

  • Malicious damage to the property cause by tenants
  • Loss of rent
  • Legal expenses related to tenant disputes, eviction and property damage
  • Repairs or maintenance to parts of the home damaged by the tenant

As you can see, this insurance is really important for investors to protect their property against the wide range of tenants they will likely have over the period of ownership.

  1. Building insurance is a big one. This insurance will help protect you against costs associated with the physical structure of the home.

    This can include damage to the walls, floors, doors, roof and other permanent parts of the property. 

    This insurance will protect these permanent fixtures from unforeseen risks, such as fire, theft and vandalism.

  2. Contents insurance: similar to building insurance, contents insurance protects the personal features of the property. 
    This can include the non-permanent features you’ve provided as landlord, such as furniture and appliances. 
  3. Rent default insurance: Another important one for investors is rent default insurance, which will protect you against a tenant failing to pay rent. 

    This type of insurance can potentially cover lost rent, as well any of the related costs, such as eviction proceedings and legal fees. 

  4. Public liability insurance: let’s say someone visits your home and is injured while on the property.

    In some cases, you as the property owner may be found liable and will need to cover the costs associated with the injury that the visitor may be seeking. 

    This is where public liability insurance can come in handy, protecting you against these expensive costs. 

Is Property Insurance Really That Important?

As we’ve already mentioned, properly insuring your property is critical to protect your finances from the unpredictable. 

  • Financial protection: is a key reason why investors buy insurance – to ensure they have financial protection against loss or damage to the home caused by anything from natural disasters to theft. 
    But it isn’t always the worst case scenario when insurance can be useful. Insurance for the landlord can be beneficial for the following reasons:
  • Tenant Eviction: the right insurance policy may actually cover any legal expenses during the more costly and lengthy tenant eviction processes. 
  • Tenant damage to property: often tenants in their occupancy of the home can intentionally and unintentionally cause damage to the property. 

    Insurance can cover the cost of repairs if this were to occur.

  • Liability coverage: the right insurance policy can also help you recover costs if someone is injured on your property or in situations where damage is done to someone else’s property.
  • Lender requirement: sometimes, purchasing property insurance isn’t really a choice.
    Certain lenders will require property investors to have insurance as a lending condition. 
  • Complying with local laws:  Some states and territories may include certain types of insurance as a legal requirement. 

This can include public liability insurance or worker’s compensation insurance, and not having this level of insurance can result in legal ramifications. 

Make sure you understand the property laws and regulations of the state you’re purchasing in.

For more on the legal requirements of buying property in Australia, check out the advice in this video!

The bottom line…

As property investors, we are always trying to figure out how to minimise costs and maximise profit. 

But sacrificing property insurance to save on these costs is not the answer.

Spending a little money now can go a long way to protect you in the future.

Of course, knowing what policy is right for you and making a calculated purchase is the best way to save when it comes to insurance. 

We can’t control what will happen in the future, but buying the right property insurance can go a long way in protecting you against those unpredictable moments.

PK Gupta
Published: 01 Mar 2024


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