If you are considering purchasing an investment property, there are a few different types of investment property insurance you may want to consider.
The first type of property investment insurance is Lenders Mortgage Insurance (LMI). Depending on your lender’s requirements, LMI allows you to borrow up to 90% of the purchase price of the property with a lower deposit than what is normally required.
Traditionally, lenders require investors to have at least 20% deposit. However, by using LMI lenders are able to offer lower deposit home loans. LMI protects the lender if a borrower is unable to meet their mortgage repayments and the property needs to be sold.
In some instances, if the proceeds of the sale of the property are insufficient to cover the outstanding loan balance and other costs incurred by your lender in relation to enforcing the sale, the lender is able to claim any shortfall in accordance with the terms of the insurance policy.
The cost of LMI is tax deductible and is the only fee that can be rolled into the total of your investment loan.
LMI should not be confused with the second type of property investment insurance which is Mortage Protection Insurance. This type of investment property insurance will cover your mortgage repayments in the event of sickness, injury, unemployment, disability or death. Mortgage Protection Insurance covers you whilst LMI is designed to cover your lender.
The cost of Mortgage Protection Insurance may also be tax deductible when taken out for an investment property so be sure to check with your accountant.
The third type of investment property insurance you should consider is Landlord’s Insurance which is one of the most important purchases a property investor can make. This type of property investment insurance will cover you for damage to the building and contents, and for rental default or damage by the tenants.
Be sure to use the following checklist when shopping for your various investment property insurance policies:
- Shop around – there are plenty of insurance providers out there and the costs can vary considerably
- Make sure the policies provide adequate coverage to suit your requirements
- Do not always go for the cheapest policy – it may not be the best and trying to save a couple of hundred dollars now could potentially cost you thousands in the long run
- Read the fine print and be sure you know exactly what you are buying
- Look for discounts as some insurance providers will offer costs savings if you insure multiple properties with the one provider (or a mix of health, car and property insurance)
- Check how and when you can claim – does the insurer offer 24 hour claim lines or a level of service that is appropriate for you?
- Check what you need in order to claim (ie. what happens if you have lost your paperwork or your receipts are damaged in a flood/fire)
- Make sure you are covered for acts of nature and the appropriate ones for where your investment property is located
- Make sure the building insurance will cover you for complete or partial destruction of the property and also includes the pipes, cables, fixed appliances, fixtures and fittings
- Building insurance is different for strata titled units so do your homework first and make sure the body corporate has adequate strata insurance
- Understand where you stand on the contents (or items that are not viewed as part of the building structure) including carpets, curtains, appliances and light fittings
- Make sure the Landlord’s Insurance covers you against loss of rent and check how long you have to wait before making a claim (and that you have adequate bond to cover the timeframe)
- Know how long your policy will cover a loss of rent
- Check if the relevant property investment insurance includes Workers Compensation Insurance to cover any contractors working on the property (such as the pool cleaner or gardener)
- Before committing to the policy, check with your accountant to make sure the cost of the relevant property investment insurance is tax deductible
The final recommendation when it comes to buying insurance for your investment property is never automatically assume you are covered and always check the fine print. This applies to renewal notices too – don’t just pay the renewal premium because often the coverage or conditions have changed and you might not be aware.
Finally, if in doubt it is better to be over-insured than under-insured because the cost of your investment property insurances are generally tax deductible and could save you thousands (or more!) in the long run.
If you have any questions about what property investment insurances you need, be sure to speak to your accountant or a reputable insurance provider. Alternatively, contact the team at Investor Assist and we will be sure to point you in the right direction!