Investment Property Insurance - What they didn't tell you!

Posted by Jack Vale on May 23, 2017 4:50:04 PM NZST
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It's no secret that insurance for your investment property is an important decision.

In fact, as a property management agency, it's something we recommend that you simply cannot go without.

In this article, I am going to bring to light some potential issues we see daily... and what you can do about it.

Let's get started.

Warning: This is just an example... you are NOT going to find any diluted misinformation here… everything we do is backed by credible sources. Follow the links and check for yourself.

 

Now brace yourself

 

Being from Wellywood - we have seen our fair share of property damage. Especially from earthquakes!

 

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And...

As an educated property investor, you should seriously think about hedging your bets if some random natural disaster comes to bare its wrath.

As we all know that a few years back the Christchurch earthquake was catastrophic for tens of thousands of people... 

 

 

 

Plus there is a reason why millions of kiwis hit social media with earthquake alerts on a weekly basis.

 

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Then the government has built a system to monitor earthquake activity and stream it to our phones. - It's call GeoNet and its one of the highest traffic sites in the country. 🤔🤔

 

 

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The simple facts are that we live in a natural disaster prone country and because of this fact we should take precautionary steps to protect our investments.

 

 

85% of New Zealand residential properties are underinsured by up to 28%.

 

That’s the word from a new report compiled by the New Zealand treasury. - View it here

So that means that if this happens again... which is likely to happen..

You may be quite exposed to a loss.

 

A loss worth almost 30% of your property value - could disappear instantly.

 

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Let's do some sums to back this up.

Say we have an investment portfolio worth $3.1 million, and the replacement cost of the buildings/improvements stand at $1.5 million.

 

In this small case study: You would stand to potentially lose up to $420,000 that you could claim to replace the buildings

 

That does not take into consideration that building costs are skyrocketing by up to 17% each year and there is no guarantee that the amount you are insured for will be enough to cover the cost of a total rebuild.

With a spate of recent natural disasters around the country from the Kaikoura earthquakes and freak storms more recently to the infamous Christchurch earthquakes, the need for property owners to be clued up when it comes to insurance has never been more important.

The risk of the rebuild cost being higher than the insured value sits entirely with the policy holder.

 

As an investor, that’s a scary place to be 😰

 

Here then is everything you need to know about why you’re under insured and what you can do about it.

The report from the Treasury has caused quite the stir.

Attributed to the costs of building rising at around 7 to 17% each year depending on your area, there is no guarantee that the amount you are insured for will be enough to cover the cost of a total rebuild.

This can cause serious issues for investors.

It is no secret that New Zealand sits perfectly to attract natural disaster.

 

Earthquakes and extreme weather are frequent.

 Just ask anyone in Christchurch or Wellington.

On the whole, most properties have performed extremely well residentially, at least, in the face of these natural disasters.

 

The facts are, however, that no one can predict what is around the corner.

 

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Natural disasters become so terrifying largely because they can come at any time and don’t give any warning.

As a landlord, the cost of completely rebuilding your home in the wake of the earthquake can drastically impact on your portfolio, both short and long term.

While the cost of making sure you are insured will impact on yields and consequently returns, failure to do so could result in a much larger expense further down the line, which could devastate your investment portfolio.

Landlords must also remember that it is not just drastic damage to their properties from natural events they have to worry about.

In the event that your property should become uninhabitable for whatever reason, you are about to lose a significant portion of income.

 

Insurance companies can insure you for loss of rent if your property is uninhabitable. 💰💰

 

Insurance companies will also cover you for any malicious damage that has occurred to your property during a tenancy.

As a landlord, the cost of not having this insurance could be in the tens of thousands, maybe more.

 

 

The cost of the additional insurance, on the other hand, is approximately $300 per annum.

 

 

Now remember that the cover comes with a few basic obligations.  

Inspections are compulsory so you have to be on your game.

Records of these inspections is also a must and some insurance companies require photos from each inspection. This is something that you should already be doing as a landlord and should come as no surprise.  

 

Insurance can be confusing - but it doesn't have to be!

 

Policy wordings change and the policy that you took out originally may no longer be enough to cover your property and your investment.

 

“My advice to property owners is: don’t take unnecessary risks, consult an insurance broker in your area who can assess your needs and is able to advise what type of cover is best suited.”

 

That is the word from NZ Brokers CEO Jo Mason. Insurance brokers can be invaluable for investors.

 

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When you engage a broker, the insurer directly outsources the management of the policy to the broker.

This benefits you as an investor in a few ways. Firstly, you are dealing with someone directly.

You do not have to pick up the phone and ring a call centre and deal with someone different each time.

Instead, you call the broker who you have an existing relationship with who can provide expert consultancy.

They can also offer you extensive advice when it comes to claiming time as well.


 

Topics: property investment, insurance, property investment insurance

 

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