7 key ways to protect your property investment portfolio
Real Estate Know-how
30 November 2016
Astute property investors adequately insure their resources, to preserve cashflow and an asset capital value.
The business of property investing is a serious one. Take it too lightly and fail to adequately preserve essential cashflow and your asset’s capital value, and it’s likely you’ll end up with more regrets than riches.
No sensible business owner would fail to insure their livelihood or those resources and commodities that make the day-to-day running of their operations possible.
Here are seven types of insurance every property investment owner should consider, remembering that most can be claimed at the end of the financial year as another way to effectively administer cash flow.
This is an all-encompassing policy that not only protects the premises and provides for public liability should someone decide to sue you but also helps to mitigate common financial risks associated with your portfolio, including:
Cost of repairs necessitated by tenant damage (willful or accidental)
Loss of rental income due to arrears and/or tenants who abscond
Legal costs related to any action against tenants
Replacement of locks if required
Tax audit costs
Of course, as with all insurance, different providers will include different types of coverage around these areas within their respective policies. So it’s always essential to read the fine print.
Public liability insurance
This generally provides compensation anywhere from $5 million to $20 million and is one every property owner should have in our increasingly litigious world.
If someone’s property is damaged, or your tenant or a guest injures themselves or dies on your premises as the direct result of an accident caused by unsafe conditions or inadequate maintenance, you could be deemed financially liable.
This may mean being forced to pay all medical costs should your tenant trip up a dodgy front step and break their leg, for instance.
Even if you’re not found to be at fault, you could be up for significant legal costs incurred while defending yourself. Public liability insurance protects you from this serious financial risk.
If your building is damaged due to things like a flood, fire or willful vandalism, you can usually claim the cost of repairs through building insurance. If the damage is far too excessive to fix, you can also receive a payout through your policy to replace the building.
If your investment is in an area with a history of certain natural disasters, such as floods or earthquakes, you might have to pay extra for more specialist type coverage, as it’s unlikely these will be captured by a general insurance policy. Once again – make no assumptions and confirm exactly what you’re covered for!
This is necessary for property investors who decide to rent out their dwellings either fully or partially furnished, as it will protect against any damage to furniture or appliances, such as fridges and washing machines, or in case of theft.
Anyone with family ties and personal debt of some kind (particularly one or more property mortgages) should obtain life insurance.
Under a term life insurance policy you’re insured for a specific amount, which your estate and/or nominated beneficiaries receive in the event that you die or are diagnosed with a terminal illness. Some policies also provide for total and permanent disability payments should you lose all work capacity.
Obviously, you don’t want to leave your loved ones with a significant financial burden. Consider things like general household running costs, future expenses that might arise and what’s required to cover any cash flow shortfalls for your investment portfolio when determining how much cover to take out.
Income protection insurance
One of the greatest assets when it comes to preserving a property portfolio is your capacity to generate an income.
In the event that you cannot work for a period of time due to prolonged illness, injury or an accident, you can receive a monthly benefit of up to 75 per cent of your income through these policies. Many are heavily restricted, though, so make sure coverage is adequate.
Should you find yourself donning the developer’s hat as an ‘owner builder’, construction insurance provides coverage while works are taking place on site.
Professional builders have their own insurances of course, but if you take on this role yourself or commence renovations to an existing dwelling, you’ll need to look at securing your own policy. Failing to do so can have serious legal repercussions.
Paying for appropriate insurance policies is necessary if you hope to mitigate risk as a property investor. While the cost might seem significant, consider the ramifications if something were to happen and leave you exposed to a massive financial burden with no help in sight.
If you’d like professional guidance when it comes to securing the best possible insurance coverage for your property portfolio, get in touch with the team here at Little Real Estate. We can point you in the right direction with our extensive industry networks and advice you can count on