Expert Advice with Ken Raiss.
Sophisticated investors understand their portfolios are the equivalent of income-producing businesses and wealth creation vehicles.
What I mean is they don’t adopt a set and forget attitude, and then naively hope that it all works out in their financial favour… someday! Rather, just like business owners, they make sure they have the necessary insurances in place to protect their assets should something bad happen.
So, here are three types of insurance that all property investors should consider.
1. Landlord insurance
Landlord insurance should be a non-negotiable for all investors, but alas it’s not.
Some novice investors believe that having their own building insurance or relying on the insurances provided by their owners corporation or body corporate will be enough.
Well, it’s not.
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? An investor can’t insure contents, such as a tenant’s lounge suite, that they don’t actually own (unless it’s fully furnished).
That’s one of the advantages of a landlord’s policy because it insures the inside of the property, such as flooring and window coverings.
It also provides cover for damage that may be caused by a tenant or one of their visitors as well as if they injure 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, without a huge financial outlay in premiums.
2. Income Protection Insurance
This insurance was once only considered the domain of the self-employed, however, more and more investors are opting to have income protection policies.
One of the reasons why is that in times of sudden job loss, either through redundancy or illness, this insurance will ensure that 75 per cent of your income is still paid to you.
This cash flow will help to cover your living expenses until you find new employment or recover from your sickness.
Of course, one of its most valuable components is it should also cover the costs associated with your property investment portfolio.
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.
They reason that because they don’t have any offspring, it’s unnecessary.
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 ones up for an easier life courtesy of your wise decision-making during your life-time
The bottom line...
As property investors, we’re in the business of dealing with risk.
Sure we approach every deal with the hope of making money out of it, but the reality is each deal also brings with it an element of risk.
That's the topic of a whole other discussion, but we can minimise our risks by avoid them, accepting them it, reducing them or transferring them.
When you take out insurance, you're transferring the risk to an insurance company. And that's a good thing
Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.