A Property blog by Paul Bennion.
Recent storm damage in areas such as South-East Queensland, Victoria, New South Wales and Victoria, highlight the need for property owners to make sure they are properly insured.
The widespread damage to properties by storms covering such a large geographic area shows that no-one is immune from having their home damaged.
As we enter the summer months when the danger of bush fires is also extremely high in some areas of Australia, it is timely to remind property owners to have adequate insurance cover.
Many people underestimate the cost of repairing or rebuilding their homes because construction costs have risen very sharply over the last decade.
The danger of underinsurance has been highlighted by the Australian Securities & Investments Com-mission (ASIC) in its report, “Getting home insurance- A report into underinsurance”. ASIC notes sur-veys which have found that between 27% and 81% of home owners were underinsured by 10% or more.
ASIC also highlighted research which found that 24 per cent of consumers did not increase their in-surance following renovations costing between $20,000 and $60,000.
The danger of underinsurance is particularly high for first time property buyers who have little equity in their homes and may try to save funds by limiting their level of insurance.
It is a traumatic enough experience to have your home destroyed by a fire or storm. However, it is even more traumatic if you don’t have the necessary funds to rebuild the property due to lack of in-surance.
In addition, it is believed that only a very small proportion of investment properties have some form of rental insurance product.
These insurance products provide the property investor with protection against malicious damage to the prop-erty as well as loss of rent.
A bad tenant can cause thousands of dollars’ damage to a property and may owe several thousand dollars in rent before they are finally evicted by the courts.
Many property owners view insurance as an unnecessary expense and they underinsure their proper-ty or do not have any home insurance.
By trying to save a few hundred dollars each year in insurance, these property owners are putting their financial future at risk.
The Insurance Council of Australia have produced a useful leaflet highlighting tips on how to avoid underinsurance which can be downloaded at www.insurancecouncil.com.au
Property investors should also protect their financial interests by ensuring that they fully claim the generous tax benefits associated with property investment such as depreciation. Tax depreciation benefits can amount to up to 60% of the total value of a property.
The cashflow generated from claiming tax depreciation can help pay for insurance cover and other associated costs related to holding an investment property.