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Avoiding underinsurance

01 October 2013 Sharon Fox-Slater

sharon 2If you’ve taken the time and trouble to read and compare competing landlord insurance policies, congratulations – you’re in the minority.

Blogger: Sharon Fox-Slater, general manager at RentCover

However, even the best insurance policies can leave property investors exposed if they underinsure.

Underinsurance is rife in Australia. A study by Construction Data division of Reed Business Information Systems found 87 per cent of homes were insured for less than their true replacement value.
If you insure an investment property for $200,000 and the actual rebuild cost is $400,000, you risk being caught severely short if the property is destroyed.


Deliberately underinsuring an investment property is short-sighted and risky. Fortunately, it’s also rare. Most investors care enough about an asset worth hundreds of thousands of dollars to want to protect it fully.

The problem is it’s not easy for us non-builders to work out what it would realistically cost to rebuild.

Rebuilding is more expensive than building from scratch. That’s because you first have to pay to demolish the damaged structure – which may well contain asbestos – and to clear the site.

Other hidden costs include council fees, re-establishing gardens and professional fees for architects, surveyors and engineers. In addition, the rebuild will need to meet modern building standards – regardless of what kind of structure was on the block before.

Another major expense is lost rent. A rebuild can take six months or more, which is a long time to support the investment without any rent coming in. Investors who take out building insurance but not landlord insurance have to cover this gap themselves.

The most certain way to avoid being underinsured is to pay a quantity surveyor for a formal replacement cost estimate every five years or so, increasing the sum insured every year in the interim to account for rising building costs. (Since quantity surveyors also do depreciation reports, you might be able to negotiate a discount by asking for both assessments at once.)

If you choose to use online calculators instead of a quantity surveyor, select ones which ask detailed questions, such as whether your home is on a slope. Compare the answers from at least three then add a margin for safety – and ask a builder for an opinion on the estimate you’ve arrived at.

And, if you renovate, don’t forget to increase your sum insured to account for the improvements.

Avoiding underinsurance
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Sharon Fox-Slater

Sharon Fox-Slater

Sharon Fox-Slater is the managing director of RentCover, a division of EBM, which insures 120,000 investment properties around Australia. With over 20 years’ experience in landlord insurance, Sharon’s top priority is customer service and positive customer comments are her biggest marker of success. Despite leaving school at 15, Sharon has forged a ground-breaking career – she was the first woman to become a fellow of the National Insurance Brokers Association. Sharon was honoured to have been included in Insurance Business magazine’s Elite Brokers 2013 list.

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