Navigating the constant and unpredictable developments resulting from the spread of COVID-19 is a tricky business. Having the right team is critical in any marketplace but as we enter these even more uncertain times, with a landscape that changes daily, the best way to protect yourself from the unforeseeable is to make sure you have landlord insurance in place.
Your property assets are going to take a hit in this market and the last thing you want is to incur further losses due to poor property management or inadequate insurance. Think of landlord insurance like a metaphorical face mask and hand sanitiser for your assets to protect you from what you cannot predict.
For the uninsured, take note that most insurance companies are only paying claims for loss of rent to customers whose policies are dated before the onset of COVID-19. So, if your policy starts after that time and you have incurred losses, your chances of being covered are severely limited.
If you’re lucky enough to be insured, here are some key things you need to be aware of:
Fixed term lease versus month to month
If tenants are on a periodic lease, most insurance companies will only pay two weeks’ rent if tenants fall behind. In contrast to this, if tenants are on a fixed term lease the insurer may pay out up to 52 weeks depending on the circumstances.
Timing
Make sure your agent is on top of issuing notices to your tenants. If an agent does not issue appropriate notices in accordance with the residential tenancy act this can also affect your insurance pay out.
Depreciation of assets
Any fittings or fixtures in your investment property are subject to depreciation and this will affect the pay-out amount from the insurer in the event of loss or damage. For items older than 1 year, the amount is depreciated by 7.5% off the new repair or replacement cost for each cumulative year after year 1. For example, say you bought a brand new investment property five years ago and it has sustained damage that will cost you $1000 to replace or repair. Your pay-out amount will be the $1000 less four years of depreciation @ 7.5% = $732.09
The importance of regular inspections
Make sure your agent conducts inspections every six months. Most claims will only be granted if your agent has inspected the property within the first six months of the tenancy and thereafter.
Rubbish removal
If your tenant vacates the premises but leaves behind a considerable volume of unwanted or abandoned items, be aware that a majority of insurers will only pay for the cost of rubbish removal if the cost is over $5,000.
Sub-letting implications
Do you or your tenant have a sub-letting arrangement in place? Insurance companies will not pay out if there are multiple leases in place for the one dwelling (for example sub-letting as a rooming house that is not registered with council).
Without underplaying the extreme and global reverberations of coronavirus, it is just one of many very real scenarios that highlight the importance of being adequately covered. Although you need to be aware of circumstances like the points listed above, remember that landlord insurance is a nominal expense compared to the value of your asset and can effectively shield your from any unpredictable event, not just a global pandemic.
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