Landlord insurance is an essential ingredient in your property portfolio, protecting you as the owner from bad tenants, natural disasters and the economic hardship of legal actions and sudden drops in rental income. This article will cover the 5 most expensive mistakes you can make when insuring your rental properties, and how to avoid them.
It might be tempting to rattle through some quick repairs in between renters, but don’t fall into the trap of making any substantial changes to your rental property without double checking the fine print of your policy. Some less reputable insurers might void your policy if you change anything structural to the property, even common upgrades like installing new double glazing or blocking off disused chimneys could lead to them not paying out if the worst might happen.
Don’t forget about the condition of your property. The whole appeal of renting property lies in the residual income, after all it’s not very residual if you have to keep checking on things or collect the rent in person. Even the nicest of tenants are unlikely to take as much care of your property as they would of their own, so it’s well worth checking in on the state of the property at regular, pre-defined intervals or outsourcing the task to a property management company on your behalf – before anything becomes a costly repair.
Whilst having adequate landlords insurance is a vital when renting your properties, the obvious goal is to never need to use it. This comes down to avoiding potential problems in the first place and erring on the side of caution when choosing who you rent your property to. Running a basic background check or asking for more than one reference before handing over the keys will go a long way to never having to claim on your insurance in the first place.
Closely related to this tenant selection is location selection. When the economy is in a down turn, it’s a great time to pick up some bargain priced property, especially if you’re cash rich or also own a cash flow business. But don’t be tempted to buy something just because it’s at a bargain price now, you might regret the decision later when you add up the potential costs of having a rental property in an area that’s higher in crime, more prone to fires or more expensive to insure due to its proximity to hazards. It’s basic maths – the cheaper your insurance bills are, the less likely you are to need to ever use it.
Get the best quote you possibly can. This is common sense, but surprisingly few people have the patience to run through all the different variables that can affect the exact price you’ll pay for your landlords insurance. Are you just insuring the property? How about your rental income? Does your policy cover periods when there’s no tenants paying you?
Then once you have a competitive quote, use that as your benchmark when renegotiating the terms and premiums next year. This way you’re fully insured for all the things that might actually happen in your unique circumstances, and still get the best deal possible.