A property investor's priorities are mostly centred around things like picking the perfect property, setting the right price for rent and vetting your tenants. While these are important, there’s one aspect of property investment that often gets overlooked: investment property insurance.In fact, a whopping 2.3 million rental homes in Australia are underinsured (according to the ABS), leaving investors financially exposed if the worst happens.
We get it: insurance can be costly, and you don’t want to be paying more expenses than you absolutely need to. That’s why we’re here to help.
We’re running you through the types of investment property insurance you might need, what coverage is the most valuable and how much you should be paying along the way.
But first…
Is it important for property investors to have insurance?
Absolutely yes! Owning a rental property can come with risks and unpredictability. It’s more than a good idea to make sure you’re covered if things don’t go to plan. Investment property insurance can help protect you from financial loss and give you peace of mind.
Here’s a few more reasons to insure your property investment:
- Financial protection: Insurance can provide financial protection against loss or damage to your investment property caused by events such as natural disasters, theft, or vandalism.
- Liability coverage: Insurance can also provide liability coverage if someone is injured on the property or if there is damage to someone else's property.
- Damage caused by tenants: Whether intentional or accidental, tenants' damage to the property or furnishings may be covered by insurance.
- Evicting a tenant: In some cases, evicting a tenant can be a lengthy and costly process. Some insurance policies may provide coverage for legal expenses incurred during the eviction process.
- Legal Compliance: Certain types of insurance, such as public liability insurance or workers' compensation insurance, may be required by law in some states or territories. Having insurance will help you avoid potential penalties or fines for non-compliance with legal requirements.
- Lender requirement: Many lenders require property investors to have insurance as a condition of their mortgage, so having insurance can help you meet this requirement and secure financing for your investment.
What kind of insurance do I need for an investment property?
To help you get the right kind of coverage, let's walk you through the types of rental property insurance that can protect your investment.
- Building insurance: This type of insurance covers the physical structure of the property, including the walls, roof, floors, and other permanent fixtures. Building insurance can protect your property against damage caused by natural disasters, fire, theft, and vandalism. Some policies may also include liability coverage for injuries sustained on the property.
- Contents insurance: This type of insurance covers the personal property inside the rental property, such as appliances, including bedroom furniture, and other belongings that you own as the landlord. Contents insurance can protect you against damage caused by natural disasters, fire, theft, and vandalism. Liability coverage may also be included in some policies.
- Landlord insurance: This type of insurance is specifically designed for landlords and typically includes both building and contents insurance as well as additional coverage options, such as loss of rent, malicious damage caused by tenants. Legal expenses related to tenant disputes, eviction, and property damage are also typically covered. Depending on the policy, landlord insurance may also cover the costs of repairing or rebuilding, following damage caused by a tenant or their guests.
- Public liability insurance: This type of insurance covers you against claims made by third parties for personal injury or property damage caused by your rental property. For example, if a tenant or visitor is injured on the property and you are found to be liable, public liability insurance can help cover the costs of any legal fees or compensation payments.
- Rent default insurance: This type of insurance protects you against the financial loss that can result from tenants failing to pay rent. Rent default insurance can cover the cost of lost rent, as well as the cost of eviction proceedings and legal fees.
Insurance companies may offer additional coverage options, and the specific terms and conditions of each policy can vary. It's important to carefully review your insurance policy and understand the terms and conditions of coverage, including any exclusions or limitations.
How much is rental property insurance?
Insurers determine the cost of your rental property insurance by taking into account several factors, including the property's size, age, condition, and location.
Research by Canstar in 2022 on the costs of landlord insurance gives us some approximate numbers on how much you could expect to pay in premiums for a house or unit in Australia.
State or territory | Houses (Annual) | Houses (Monthly) | Units (Annual) | Unit (Monthly) |
|---|---|---|---|---|
NSW* | $1,686 | $140.50 | $400 | $33 |
VIC | $1,511 | $126 | $342 | $28.50 |
North QLD* | $4,900 | $408 | $726 | $60.50 |
QLD | $1,817 | $151 | $358 | $30 |
SA | $1,454 | $121 | $323 | $27 |
WA | $1,862 | $155 | $374 | $31 |
TAS | $1,515 | $126 | $336 | $28 |
NT | $4,375 | $365 | $704 | $59 |
*NSW includes ACT. North QLD includes all areas north of Rockhampton.
:Different TipsTo put the costs of landlord insurance in perspective, it can be helpful to calculate it as a percentage of your rental income.
Let’s assume you earn $1,000 a week ($4,345 a month) as rental income from a property in Victoria.
If your monthly premium cost is $140.50 (or $1686 annually), that’s just 3.23% of your rental income spent on landlord insurance.
A small price to pay for peace of mind.
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If you’re not sure landlord insurance is the right way to go for you, here’s what you could expect to pay on average for property and home insurance on a 3 bedroom home unit according to research by finder (last updated in August 2022).
Average home and property insurance premiums in Australia - 2022
Australian states | Building & contents insurance (Monthly) | Contents only insurance (Monthly) | Building only insurance (Monthly) |
|---|---|---|---|
NSW | $160.75 | $46.22 | $138.64 |
VIC | $160.28 | $63.95 | $140.67 |
QLD | $160.63 | $40.15 | $143.86 |
SA | $126.39 | $41.67 | $101.79 |
WA | $159.78 | $44.02 | $140.43 |
ACT | $113.80 | $36.38 | $93.91 |
TAS | $118.80 | $36.88 | $97.59 |
Average costs | $142.92 | $44.18 | $122.41 |
How to pick the best home insurance for investment properties
Here are a few of our best tips when it comes to picking the right level of cover and best insurer for your particular needs:
- Consider the coverage options: Look for an insurance policy that covers the full value of your property and provides for a range of risks such as fire, theft, vandalism, and natural disasters. Understand how your insurer will calculate the costs of rebuilding your entire property or fixing any major damage, as each insurer will use a different method.
- Look for a policy with a high liability limit: Liability coverage is essential for protecting you from lawsuits that may arise from injuries that occur on your property. Look for a policy with a high liability limit to ensure you have adequate coverage.
- Check the policy exclusions: Some policies exclude certain types of damage or exclude coverage for specific events, such as flooding. Make sure you understand what is not covered by the policy.
- Consider the cost of the policy: Look for an insurance policy that provides adequate coverage at a reasonable cost. Shop around and compare policies from different insurance providers to get the best value for your money.
- Check the insurer's reputation: Look for an insurance provider with a good reputation for customer service and claims handling. Read reviews and ask for recommendations from other property investors.
- Look for additional benefits: Some insurance providers offer additional benefits such as discounts for multiple policies, free building inspections, or emergency assistance services. Keep these benefits in mind when choosing an insurance provider.
Not sure how to find any of this information? Each insurer and insurance product will have a PDS (Product Disclosure Statement) available for download on their website to help you understand the terms and conditions of your policy.
Do your research, compare your options and find an insurer that offers cost-effective premiums and the right level of protection for your property.
:Different
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