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Property Insurance - Are You Adequately Protected?

Paul McKenzie
Paul McKenzie

Property is a big investment class in Australia, and yet some property owners and investors neglect the necessity of building insurance, including adequate coverage. Strata schemes, by law, require insurance, with an insurance valuation assessment by a professional property valuer every five years or so to make sure they are adequately covered.

When it comes to freehold property, whether it's a residential house, commercial office property, industrial warehouse or retail shop, some owners/investors make sure they are adequately covered, while some don't. The ones who don't, do not realise the consequences until something happens. In Australia, in recent years, we have seen bushfire damage, storm damage and, more recently, flood damage.

Are you adequately covered by your property insurance?

First of all, read the fine print in your insurance policy to see if you are covered for things like bushfire, storm or flood damage. Some insurance policies do, some don't. It's better to be safe than sorry.

Secondly, the insurance assessment on your property may not adequately cover you in property reinstatement, as the property reinstatement in building costings are too low. For example, if your property's home/building and improvements are worth about $300,000.00 to rebuild and your property reinstatement assessment is only $200,000.00, then you have a $100,000.00 shortfall to cover with your own money or may be forced to take out a loan to cover the shortfall.

It's important when taking out property insurance to make sure it covers things such as bushfire, storm or flood damage. In addition, it's important to make sure the property insurance assessment is adequately covered for reinstatement. If in doubt on the property reinstatement costings, then it's best to get a valuation report for insurance purposes from a property valuer.

Fire levies to cover the state's fire services are still being discussed and under consideration by the New South Wales Government. Currently, the fire levies are charges with insurance policies. The trouble with this system is that some property owners/investors have insurance, while others don't. When Mike Baird was Premier, the Insurance Council lobbied the state government for an alternative system to make sure everyone pays and is covered. There was a proposal, which was unsuccessful, to raise fire levies with the council rates based on a percentage of land value, similar to the council rates system. There was a big outcry from property owners, especially commercial property owners and investors, who saw this as another tax on property levied at them. Areas with high property values would pay more, although fire services have similar costs, regardless of the location. The state government is still considering alterative options for a fire levies system that is fair. The best solution is to make insurance compulsory.

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