If you are still paying off the bond on your rental property, you will also be paying a monthly or annual premium for home owner’s insurance – also known as HOC – which covers you against damages to the structure that may be caused by flooding, fire, wind, hail or other natural disasters.
Most banks will not approve any home loan without such insurance, but if you have a standard HOC policy, whether it is from the bank itself or from an independent provider, it may not actually cover you against damages that occur when the property is occupied by a tenant or standing empty.
It also may not cover you against loss of rental when the property cannot be occupied because it has been too damaged.
“You need to check the terms of your policy and make sure that the insurer knows the property is being let and is not owner-occupied,” says Greg Harris, CEO of Chas Everitt Rental Properties. “This may affect your premium but paying a little more is better than finding out after a disaster has struck that your cover is not valid at all”.
“In addition, you need to check whether there is a provision preventing you from letting to a certain category of tenant, such as students, for example, or multiple single tenants, as in a commune.”
Then if that is all in order, he says, you must make sure that the sum insured represents the full replacement cost of the property, not its market value, which is likely to be considerably lower.
“Both property values and replacement costs rise over time and it is your responsibility to ensure that your insurance keeps pace with these changes – and that you keep up the HOC on the property even after the bond is paid off.”
Harris says things get even more complicated if your rental property is in a sectional title scheme, because in that case the HOC for the whole building or complex will be jointly paid by all the members of the body corporate, out of the monthly levies they all pay.
“You will need to be especially careful in such an instance not to invalidate the HOC that covers everyone else’s properties as well as your own, and to ensure that the replacement value is regularly adjusted even if it means an increase in the levies.”
He says there are also several other important insurance issues for landlords to be aware of, including the following:
· Household contents that belong to your tenants must be insured by them – you are not responsible for any damage or theft of their goods.
· If you are letting the property furnished, however, you will need to take out a separate household contents policy to cover whatever furniture and equipment belongs to you.
And finally, says Harris, you should really have a specific insurance policy that covers you against the loss of rent and/ or utility payments due to a tenant defaulting, as well as the legal costs of getting such a tenant evicted.
“You can obtain such a policy through a reputable managing agent such as Chas Everitt Property Rentals and it is really worth it for the peace of mind it will give you.”