By Cam McLellan
Property insurance is vitally important but is something people rarely think about. It protects and mitigates risk for you and should give you the reassurance to sleep well at night, yet people use a very high risk strategy to make sure they are covered. Usually you receive a reminder from the insurance company, pay it and think, “I’m insured again,” with very little forethought and afterthought. What if you move house? What if the company doesn’t send it? What if the postie drops it? What if someone steals your mail? If you don’t get it, you don’t pay it!
On Christmas Eve four years ago, Al’s very pregnant wife Beth was going to visit her parents and was pulled over for a random rego check. The policeman told her to get out of the car and leave it on the side of the road – it turned out that it wasn’t registered! So here was Beth, pulled over in an uninsured one-year-old car, seven months pregnant, crying and coming home in a tow-truck three hours later. This isn’t exactly insurance related but oversights like this can happen in the same way.
At that stage Al and I were relying on our bookkeeper, just hoping that they had paid our rego and insurance for us, but that car hadn’t been registered for a year. It was probably a good thing that Beth was pulled over because imagine if she had been involved in a car accident which had killed someone and all of those things they could have been liable for, without insurance. So, it is very important that everyone has a process to make sure they are protected. Al and I now have a more sophisticated set up in place. I will tell you what we do and explain some further steps that you can take.
Al and I catch up with our bookkeeper once a month and they run through our portfolio figures and see how they are tracking, make sure the rent is coming in and check the budgets, expenses and things like that. Every month we also have a covering sheet for each property which says when the insurance is due and we staple a copy of the premium behind it. Every month we check the insurance is current and valid.
The other reason we implemented this system was because at about the same time Beth was pulled over we realised that we had a property which had been uninsured for about a year. I called the insurance company to check over some other policies and when I asked about this specific property, they said they didn’t have it on record, as it had expired. The same bookkeeper hadn’t paid it.
If that house had burned down in the time it wasn’t insured, I would have been left with a block of land and a $20,000 bill to remove the rubble. I would have had to build a new house and there wouldn’t have been any rent coming in. The bank probably wouldn’t have been very happy that their security was gone either.
So Al and I check in with our bookkeepers monthly. I also recommend that you sit down with your partner when the bills come in, go to this year’s calendar and tick off that the insurance came in. Also, have next year’s calendar waiting, open it to the same time next year and write in, ‘insurance for such-and-such address’. That way you will be expecting your renewal when you open the calendar next year. It is a good basic way to have a back up, so that if your mail is stolen, you know you are insuring your house and you’re covered.
This is pretty boring but very important, as is getting the right kind of insurance. We had a guy call us the other day and we were chatting about his insurance and realised that he was paying building and contents insurance for an investment property. I asked if he was renting the house out furnished and he said, “no”. So he was paying a higher premium for contents when there weren’t any.
Recently, someone asked me what excess they should choose. Personally, I put my investment property excesses up to $1000. I look at it and think compared to paying a $300 excess, I am saving $700 on my premium and am only going to have to pay that $1000 in the case of a catastrophic event, like the house being reduced to a pile of rubble. If that happens, I’m going to be happy to pay $1000 to rebuild the house. My own personal contents policies might be different but in relation to the investment properties, I’m saving a lot of money by reducing the premium.