Thousands of South Africans looking forward to a bonanza from buy-to-let property investments should be aware of the need to avoid uninsured losses that could severely dent those returns.

"The problem is that the insured risk of your property and its contents changes if you open it to tenants who may not show due care to avoid damages," says Mary Mlambo, national marketing manager of Personal Product Solutions, a division of Glenrand M•I•B.

"Typically, as an owner you would insist on a deposit from tenants but this may be woefully insufficient to cover any damages and the chances of recovering the costs of those damages from the deposit are slim.

"Your best option is to declare the risk to your broker, to accurately scope cover for your exposure and thus avoid possible later repudiation of any claims by the insurer because of lack of disclosure.

"Full disclosure will lead to a re-assessment of the risk and an adjustment of premiums. Alternatively you could exclude certain risks from your cover so reducing your premium, but meaning you also accept some of the risk yourself and will therefore not have a claim for the excluded risk in the event of a loss.

"You could also accept a higher 'excess' (the initial portion of a claim that you would have to pay) or you could 'cap' the payout on specified risks in order to moderate the premiums.

"The basic idea is to ensure that you are properly covered, or your risk is reduced and any claims you may have are not repudiated."

www.poperty24.co.za

11/07/2008