“An investment property is a large asset, one that should see good Capital Growth and it should be adequately protected with Landlord Insurance. The increased value of the property should be reflected and considered at every insurance renewal to protect landlords in the event that it is needed,” says Team Leader – Compliance and Administration, Michelle Mclean.
What is the Sum Insured?
Imagine your rental property burns down. Landlord insurance, with a proper sum insured, would cover the cost to rebuild it entirely. The sum insured is the maximum amount your insurer will pay for a covered loss. Think of it as your financial safety net.
The Two Main Components to Consider
Building Sum Insured: This covers the cost of rebuilding the physical structure, including fixtures like built-in wardrobes and plumbing. Don’t forget about additions like sheds or pools! (Land value isn’t included.)
Contents Sum Insured: This covers the cost of replacing any appliances or furnishings you provide in the rental unit – basically think about what would fall out if you tipped the house upside down…blinds, dishwashers, etc.
Why You Should Review Your Landlord Insurance
Here’s the catch: the sum insured you choose today might not be enough tomorrow.
Here’s Why:
- Inflation: Building costs are skyrocketing due to high demand and limited resources. The materials and labour needed to rebuild your property could cost significantly more than you initially estimated.
- Renovations: Added a deck or upgraded the kitchen? These improvements add value, requiring an increased sum insured.
- External Factors: Events like floods or global conflicts disrupt supply chains, pushing material costs even higher.
The Dangers of Inaccurate Sums Insured
Getting the sum insured wrong can have serious consequences:
- Under-insured: This is the bigger risk. If the sum insured is too low, you’ll be responsible for covering the difference out of pocket if a major loss occurs.
- Over-insured: While less financially risky, you’ll be paying higher premiums for unnecessary coverage.
Staying Ahead of the Curve
Here’s how to ensure your sum insured stays accurate.
- Annual Review: Make it a habit to discuss your sum insured with your insurer every year.
- Quantity Surveyor: For a highly accurate assessment, consider hiring a quantity surveyor to calculate the current replacement cost of your property.
- Online Calculators: Several online tools can also provide a good starting point.
- Automatic Updates (Check the Fine Print): Some policies offer automatic increases to the sum insured on renewal, but these might not be enough.
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The Takeaway
A small oversight in your sum insured can lead to a significant financial burden later. While mainstream insurers can be tempting, their policies might offer less protection than you expect. This can lead to situations where landlords believe they’re covered, only to find out later that crucial aspects aren’t included.
To ensure you’re getting the right protection, compare policies based on what they actually cover, not just price. Don’t be afraid to dig into the details and ask questions.
For landlord-specific needs, consider insurers like EBM and Terri Scheer. These companies specialise in landlord insurance and may offer more comprehensive coverage compared to generic insurers.
By proactively reviewing and adjusting your coverage, you can ensure your investment property is adequately protected, even in the face of rising costs and unforeseen events. Remember, a little planning now can save you a lot of stress (and money) down the road.
Need property advice?
To talk through options or other ways you can optimise your investment property, get in touch with Pippa and the Investment Services team today.
