Your investment property is one of your most valuable assets. Hence, protecting it against unforeseen circumstances is of the utmost importance. But how do you know what level of cover is right for you? And what makes for ‘good’ home insurance?
In this post, we’ll guide you through a list of things that every property investor should know about their home insurance.
Starting with the basics.
What is Home Insurance?
Home insurance is a type of insurance that generally covers the physical building and its fixtures – including plumbing or built-in cabinetry.
Building cover differs from contents insurance in that, while the former insures you against damage to the exterior, contents insurance covers household items and personal belongings within the building. These include items like jewellery, your television or furniture.
In many cases, buildings and contents insurance are often bundled together as “home insurance.”
If you’re a property investor of a unit, you’ll need to check if the Body Corporate already has home insurance that will cover you or if you need to take out separate insurance. Generally, it is the body corporate’s responsibility to ensure adequate coverage, however, this is the first thing you should check when considering your level of home insurance coverage.
You can find answers to some of the most common home insurance questions here.
Do I Need it?
As a property investor, home insurance can put you at ease knowing that you’re insured against unforeseeable events – break-ins, floods, fires. Otherwise, you may be out of pocket.
In many cases, home insurance may even be a requirement to take out a loan. For example, many mortgage loans these days require you to have a home-building insurance policy.
The Different Types of Home Insurance
When it comes to home insurance, there are two main types:
- Sum-insured cover: This is an estimate of how much it would cost to rebuild your house if it were destroyed.
- Total replacement cover: This is the cost to repair or rebuild your home to the same standard.
As the more comprehensive type of cover, total replacement cover is generally more expensive to take out and less widely offered. However, the upside is that you’re less likely to be underinsured.
If you’re opting for sum-insured cover, make sure you take the time to determine whether or not your insurer provides a “safety net” or a safeguard. This means that they will add up to 30% of your sum-insured amount in the event of a total loss to cover any underinsurance. Look for policies that offer this for peace of mind.
To help accurately gauge the value of your property and, therefore, how much cover you need, leverage the resources that most insurers offer. For example, you can use the calculators on their sites to provide an estimate of your property’s value.
Make sure to consider when your property was built, if it’s on a slope and the quality of its fixtures (known as “elemental estimating”) as opposed to just the size of the dwelling (this is the cost per square metre approach.) This will give you a much more accurate gauge.
What to Look for When Comparing Home Insurance Policies
Price is significant when comparing home insurance, but it’s not everything. First and foremost, you want an insurance policy that will suit your needs and give you the coverage you need.
When shopping around for the right home insurance for you, spend time reading the Key Facts Sheets of different policies to get a topline overview of them, or delve deeper into their Product Disclosure Statements. As you do, take note of the following features:
- Premium: This is your insurance coverage cost. It’s generally paid annually but can also be paid monthly – just check your insurer doesn’t charge extra for this.
- Excess: This is the amount you pay to make a claim. Raising your excess can help lower your premium.
- Cover Limits: This refers to the maximum amount you can claim for certain items.
It’s helpful to get quotes from the insurers you’re interested in and see what can be negotiated so you can compare them side by side.
Other Considerations
In addition, the below factors are also important when comparing home insurance policies:
- Exclusions: Even if insurance policies cover you for events like floods or fires, there may be some parts of your house that aren’t covered. Always familiarise yourself with what’s excluded.
- Adjusting your excess: As we mentioned before, most insurers allow you to adjust your excess. This means that you can pay a higher premium and have a lower excess, or vice versa. You’ll need to weigh up the costs and benefits.
- Coverage: Riffing off the first point, you should always check to see what’s actually covered in the insurance policy. This can differ between insurers, so just double-check that what you need is included.
- Add-ons: Look for policies that cover you comprehensively. For example, in the event of a fire or flood that makes your home uninhabitable, some home insurance policies will cover the costs of temporary accommodation for your tenants for up to one year. Likewise, some policies cover you for accidental damage to your home.
- Costs: Once you’ve done all your research, get quotes from your top insurers and see what can be negotiated before you settle on one. Once you’ve had the insurance policy for a couple of years, review your needs, costs and coverage again to ensure you’re maximising cost efficiencies (most insurers will give first-timers a discount.)
With these tips and tricks under your belt, you can make an informed decision that will benefit you and your investment property.