Risk mitigation you need for your investment property

Just like borrowers who get their home loans through the loansHub mortgage manager platform mitigate their risk of getting stuck with an uncompetitive rate for the life of their mortgage, property owners need to mitigate potential risk their investment may face.

A smart property owner understands their investment is a wealth creation vehicle and an income-producing asset that needs to be protected.

What this means, is that they don’t buy an investment property and then adopt a set and forget attitude, like most do with their home loans. Instead, they make sure they have the right insurance policies in place to protect their assets should something unexpected happens.

To help you mitigate any risk your investment may face, here are three types of insurance policies that all property investors should consider.

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1. Landlord insurance

Landlord insurance should be a non-negotiable for all investors regardless of the type of property you own, unfortunately, this is not the case.

Some investors wrongly believe that having their own building insurance for a free-standing house or relying on the insurances provided by their owners’ corporation or body corporate for a strata property will be enough.

If you happen to fall in the above category, then you are leaving yourself open to potential financial heartache.

Sure, building insurance will protect the physical building should it get damaged by fire or flood, but what about what happens inside the walls?

What about the fixture and fittings, for example?

As an investor, you can’t insure contents, that is actually owned by your tenant but you should however insure internal inclusions such as flooring and window coverings.

Landlords insurance also provides cover for damage that are caused by a tenant or one of their visitors. Your policy will also provide you with a public liability cover against anyone injuring themselves inside your property.

On top of that, most landlord’s insurance policies include coverage for rental default if, say, the tenant absconds or if the property is damaged in a storm and you are unable to re-let it until repairs have been completed.

Without a doubt, a comprehensive landlord insurance policy provides peace of mind for investors and best of all premiums tend to be very reasonable.  

2. Income Protection Insurance

Before you say, I am not self-employed so not interested, think about the havoc caused by covid_19 pandemic. Hundreds of thousands of Australian mortgage borrowers faced redundancy and had to defer their mortgage repayments because they didn’t have any income protection policies in place.

One of the reasons why you should consider this policy, in the event you experience a sudden job loss, either through redundancy or illness, having an income protection policy in place will ensure that 75 per cent of your income is still paid to you.

This cash flow will help to cover your living and mortgage expenses until you find new employment or recover from your sickness.

While Income Protection Insurance doesn’t replace all of your income, it goes a long way to buying you some financial breathing room until you get back on your financial feet once again.

3. Life Insurance

Many single people or couples without children think they don’t need life insurance because they don’t have any dependants once they have passed on.

The truth of the matter is, regardless of your state of current or future procreation, once you pass on, a life insurance policy will pay the benefit amount to the surviving policy owner, your estate or the person nominated as the beneficiary on your policy.

Naturally, life insurance is vital for property investors, who generally carry a significant amount of debt and have further considerations beyond the traditional family unit.

That’s why, if you carry debt on your investment properties, it’s vitally important to consider the financial impact on your loved ones from your death.

A life insurance policy can help to pay down property investment debt and set your loved one up for an easier life courtesy of your wise decision-making during your life-time

The bottom line…

When you take out insurance, you’re transferring the risk to an insurance company and thus mitigating your risk associated with the events listed on your policy.

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This article via Property Update does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.