Avoiding underinsurance on an investment property
The Australian Government’s MoneySmart website recommends comparing results from at least three online building cost calculators to estimate the amount of cover needed.
The most accurate of these calculators ask for lots of details such as whether your house is built on a slope, your postcode, the age of the house and the quality of its fittings.
Insuring for building costs alone is not necessarily enough, and there are plenty of traps for the unwary, such as:
forgetting supplementary costs including:
– demolition and removal of debris;
– professional fees from architects, surveyors and engineers;
– council fees;
– gardening costs; and
– the cost of meeting modern building standards.
failing to increase your sum insured to keep up with rising construction costs;
renovating a property but failing to increase your sum insured to account for its increased value;
letting the bank dictate your level of cover – they require sufficient cover for your loan, not for the real value of the property; and
failing to take out landlord insurance to cover lost rent during any rebuild – a year-long rebuild of a property rented for $450 a week equates to $23,000 in rent lost