A policy of damage limitation
The Age
Saturday March 5, 2011
Astute landlords shop for insurance policies tailored to their needs. FOR landlords keen to make savings wherever possible on the substantial costs of operating a rental property, it can be tempting to skimp on insurance. Surely regular building or contents insurance (or both) will suffice for most scenarios likely to affect a rental property? In the case of strata-titled apartments, don't owners' corporations look after insurance (and charge accordingly via owners' corporation fees)?Not exactly. Regular building and contents insurance policies don't cover landlords for two of the biggest risks they face: damage to the property and loss of income after a tenant "does a runner" or is evicted.Strata-titled apartment owners' corporations have some needs covered: damage to common areas such as roofs, external walls, shared walkways and gardens, for example, and liability claims such as injuries on shared paths. But coverage for damage and mishaps inside is the owner's responsibility.Carolyn Majda, manager of landlord insurance specialist Terri Scheer Insurance, says the property managers she works with estimate as few as 20 to 30 per cent of rental property owners have landlord insurance."I think there's a lack of awareness that there is specific landlord insurance available," she says. "People generally tend to insure ... the actual structure of the building but when it comes to the loss of rent and damage a tenant has caused, I don't think there's a really great awareness that you can insure against those things."Terri Scheer Insurance is one of Australia's major providers of landlord insurance. According to Ms Majda, about 60 per cent of its claims are for loss of income, followed by malicious damage. "The two very often go hand in hand," she says. "If a tenant has been given notice to vacate and they're already behind in their rent we've had so many situations where before they leave they have a go at some of the walls ... or just do damage. Not only has the landlord lost rent that they haven't paid, they've got damage to fix and the time that it takes to fix that damage where they can't have a tenant in the property."Often a combination of policies is smartest. For strata-titled apartments, this usually means strata insurance via the owners' corporation plus individual coverage via a specific landlord policy or a general policy such as building insurance with add-on options (loss of income, for example).Leah Calnan, the director of Metro Property Management and chairwoman, property management, at the Real Estate Institute of Victoria, describes specialist providers Lumley's and Terri Scheer Insurance as "probably the two better ones out there". Some other companies charge huge excesses, she says. "Or, when it comes to the bond, they don't allow locksmiths, they deem that as just an out-of-pocket expense for an owner."Banks also offer policies to mortgage holders but, in general, Ms Calnan is not a fan. "I'm a big believer in the banks but they're not great policies," she says.Whatever a landlord's choice, Ms Majda says it is critical to compare not just price but coverage, too, and to understand the impact on your mortgage-repayment schedule of prolonged repairs after an event such as storms or flooding. Loss of income is the biggest feature to look for, as well as the types of rent loss covered."'Loss of rent' doesn't mean every single situation will be covered," she says. "For example, a lot of people don't consider the fact that if they've got a sole tenancy ... and that person dies during the term of the tenancy there is insurance to cover that loss because, obviously, you're not going to have rent coming in during that time. So look at the wording carefully."Ms Calnan adds that excess is critical. "I've seen policies where the excess is $500," she says. "The owner has a claim for $800. They pay $500 and they get $300 back."That's a lot of money for the average mum and dad to fork out and then not recoup. And, yes, you can claim it on tax ... but it's still a cash-flow issue."
© 2011 The Age