Income Protection Insurance and the right ingredients of landlord rental insurance in emerging market investments result in the lowest feasible mitigated risk and highest profits. You will see why.
Insurance and Income Protection Insurance (IPI) is in essence the equitable transfer of the risk of loss from one entity to another in exchange for payment. IPI is generally referred in two categories of insurance: The first is loss of income, disability insurance for when you suffer an illness and as a result are kept away from working. Income Protection Insurance will cover you for up to a certain period and amount. The second category is for income property owners known as landlord insurance or rental insurance by the property owner. The latter is an absolute necessity in the protection and augmentation of investment property income.
While income property is in itself a low risk investment type and a good risk management asset class for investments, some liability that exist need to be targeted and brought under control. Landlord insurance and its insurance policy should include liability insurance and will effectively cover unexpected and negligent damages by the landlord from fires, explosions, floods, etc. It will also cover legal fees and injuries associated with damages. While the insurance does not cover the tenants contents from tenant loss of items, if loss was caused by the landlord or his property manager then the tenant’s possessions damaged are covered.
The income protection aspect of landlord rental is significant and must be included as part of the risk management of owning properties. It simply provides a multiplicity of protection for loss of tenant income which will ultimately affect the return on investment of the owner, so let’s look at how it can do so:
Loss of Rent Due to Damage
For example if there is damage to a neighboring property and threatens you the adjacent neighbor’s building and your tenants have to evacuate the building and not have access to it for 6 months, this loss of rent and cost to you the landlord is reimbursable.
Loss of Rent due to default
If your tenant vacates unexpectedly with 6 months left on their lease, the landlord may be reimbursed up to $5000 after deductibles.
Loss of Rent due to death of sole tenant
For example your tenant dies in the first month of his lease, up to two weeks of the tenant’s rent may be reimbursed to you the owner as much as $2000.