Insurance is something we all need to think about, especially with summer, and the fire season fast approaching. Across NSW and the Newcastle /Hunter Valley region it is predicted to be a particularly bad fire season.
Here at go go Conveyancing, we felt we couldn’t run a series on investing without covering off such an important topic. So we asked our resident Insurance Broker, Bev Ryan from Totally Focused Insurance to run through the basics, in particular for investors.
Do you know what your landlord insurance covers?
All insurance companies are different. So here is a list of the minimum cover you should consider:
- Loss or damage: Building – normal coverage plus any damage caused by tenants or visitors to the property
- Loss or damage: Contents –general household contents owned by the landlord such as carpets, curtains, etc.
- Loss of Rent –loss of rent due to default, broken leases, death of the tenant, denial of access or tenant hardship. Some companies only pay if your leases are up to date – something you should check for!
- Legal Liability –legal liability for damage to other people and property if a fire is caused by a problem at your property.
- Tax Audit –professional fees paid for a taxation audit on your rental property
Other Costs to think about:
- The increase in costs over time for any work done on the property in the overall insurance cover
- Removal of debris from the property
If the property has been owned for a number of years there is the chance that the insurance cover is well below the actual cost of replacement. It’s worth checking that your policy won’t be impacted if your property is under insured. In some cases, if you are underinsured, the insurer can reduce your claim by 50%.
An example of How Much Insurance You Need:
A property purchased in 2000 at a cost of $215,000 (land value $95,000), the building is valued at $120,000.
- You have building and contents insurance of $120,000
- The property is currently rented at $1950 per month
- The property is currently valued at $435,000
- The building is valued at $85,000
During your ownership you have:
- reduced your building insurance because you know that the value is depreciating
- claimed depreciation because the building was only 2 years old when you bought
- increased rent because of demand
- used the equity to purchase further investment properties.
A fire occurs at the property which does more than 50% damage to the building. It takes four months to fix. The costs include:
- $7200 mortgage repayments
- $6280 loss of rent, more if it remains vacant after repair
- Quotes come in at $120,000 to repair the property
- $20,000 for rubbish disposal
- the tenants claim damage and relocation costs of $12,000 because the fire was caused by faults in the wiring
- $5,000 in your personal down time and costs should also be factored in
The total cost to you is $170,480 for restoring the property to a tenantable condition. You are think you are faced with a shortfall of $70,480. But because you were under insured, you actually have to find $85,480 for the total repair.
You can see how easy it is to lose a lot of money if you were not sufficiently covered. And the roll on effect to your investment portfolio could be enormous.
Remember insurance costs are generally tax deductible so knowing you have the right amount of cover is worth any extra, small amount you may have to pay. For your own you peace of mind we recommend you get your policies assessed today.
Bev Ryan has been in the insurance industry for over 30 years with experience in brokerage, claims and underwriting. And is a member of both ANZIIF and NIBA. Bev now runs her own brokerage, totally Focused Insurance, in the Port Stephens region offering a full range of business and commercial insurances, Professional Indemnity and Lloyds of London Facility.
Contact Bev on 0418 665 477 or 02 4982 6662. Or via Email: firstname.lastname@example.org
Make it easy, make it go go!