Insurance

Many owners of residential rental properties have experienced challenges in the current lockdown situation. For those with vacant properties or undertaking renovation or maintenance projects, the current situation has thrown up some additional challenges. Will they be able to find new tenants? How do you do maintenance work around tenants who are now working from home? Moving landlord’s insurance from one provider to another can also be challenging.

Post this year’s bushfires; insurance claims will exceed $1bilion dollars1, due to lost and damaged properties. Unfortunately, this doesn’t include those properties that were underinsured or not insured at all. Throughout the COVID-19 crisis the nature of claims has been changing with most insurance companies seeing an increase in travel-related insurance claims and a steady increase in rent defaults under landlord insurance policies where this option was selected. While car-related claims have decreased because people have been driving less, home contents related claims like kitchen fires have risen due to people spending more time at home. While the type of claim may have changed, the impact on insurers’ bottom line hasn’t and that is making it a bit more challenging when shopping for home insurance, particularly landlord’s insurance.

There are an estimated 2.2 million property investors in Australia and most take out landlords insurance to protect themselves if their tenants damage the property or leave without notice. The Government’s six-month ban on evicting tenants during this crisis has certainly complicated issues.

Most real estate experts and property lawyers believe that those investors who agree to reduce rent for their tenants will not have that loss covered by their insurance. And while tenants who are not significantly affected by the crisis are meant to honour their lease agreements, many are approaching agents seeking a reduction because of job uncertainty rather than losing their jobs. This is of course of concern to many investment property owners because they still need to meet their mortgage obligations. The concept that tenants should make up any arrears is good in theory, but firstly, it may never eventuate and secondly, you still have to finance the mortgage in the meantime.

So when do you make the decision to speak to your bank about a mortgage holiday? It is important to seek advice on whether you should keep up with your payments, seek a reduction or a pause. This will always come down to your individual circumstances and overall investment and income strategy.

Some investors have also had a nasty surprise when they received their insurance renewal policy with increases in premiums.

Currently, around 85% of insurers will not sell new landlords insurance policies, because of the feared increase in claims and potential defaults on mortgages – leading to greater losses for them. Among those suspending the sale of Landlord Insurance are all the big players like Westpac, NRMA, Allianz and APIA.

What are your options other than staying with your current provider? Speak to a Financial adviser about developing a clear strategy around all your insurance options and wealth protection strategy. A longer-term tenant management strategy is also going to be a very good place to start. They will also be able to advise you on whether or not you are eligible to apply for any of the government support measures announced over the last few months around Land Tax relief and some rebates on forgone rent.

Speak to one of our friendly team at ActonAdviceGroup

1 https://www.insurancenews.com.au/breaking-news/bushfire-losses-set-to-pass-1-billion