Insurance
6 min read
How much should you pay for house insurance? Well, it depends on several things.
For starters, how much you pay for house insurance (the premium) depends on where you own a house. Generally speaking:
This is just to give you a general idea. Of course, some house insurance will cost more or less than this.
When investors come to Opes Partners, we have to forecast their house insurance costs. That’s because we want to understand the cashflow of the property. But, because most of our properties are sold off-the-plans, the house insurance approximate cost won’t be known.
So, we base our estimates on these ranges.
But, of course, these will change over time. This is why you should work with an insurance broker to get the best, most up-to-date information.
On top of that, you should know that insurance isn’t my field of expertise. That’s why I talked to Simon Yarrell, of Axico, to get the facts together.
Let’s say Sam and Josh buy a townhouse in Auckland. They’re going to use it as an investment property. If it’s insured for $500k (sum insured) the premiums will be about $2200 a year.
If they want to add on landlord insurance that might cost another $500.
If Sam and Josh buy an identical property in Christchurch, they’ll likely pay a similar premium.
If they buy in Wellington, the house insurance cost might be $1,000 more. So, you’re looking at $3300 a year.
Simon Yarrell says people expect Auckland to be the cheapest. And they certainly don’t expect Wellington to be so much more expensive.
After all, Christchurch had the earthquakes, right?
This is partly true. Christchurch used to be the most expensive to insure, because it had the earthquake risk.
But Auckland suffered extensive flooding last summer, so the premiums have evened out. Auckland has caught up to Christchurch.
Flood risks in Wellington and Lower Hutt make their insurance among the most expensive in the country.
There is also earthquake risk in Lower Hutt; it’s close to the main fault line that runs through the North and South islands.
There are certain things about your property that will make insuring it cheaper (sliding scale of cheaper vs more expensive)
For example, standalone houses tend to have cheaper insurance. Compare that to a unit or townhouse. Those properties are slightly more expensive to insure.
Why? If there is a fire, the risk is higher with conjoined buildings. That said, an older existing home (standalone or not) will be more expensive to insure. This is because the wiring and pipework will be older, and may not be up to modern standards.
Additionally, rental properties cost more to insure. That’s because rentals tend to attract more claims. Tenants can be more careless and not treat the home like their own.
On top of that, things like meth contamination and malicious damage can make insurance claims more likely.
Just keep in mind some of these claims come under landlord insurance. That is often an additional charge and not always bundled into one.
This makes the overall premiums more expensive.
(Landlord insurance is not compulsory, but is recommended. For more information, read our article)
If you want to keep your premiums on the lower side, there are things you can do.
When you make an insurance claim there is often an excess. That’s the amount you have to pay.
So, let’s say you have a $500 excess in your insurance policy. Effectively that means you can’t make a claim for anything that costs less than $500.
This lowers the risk for the insurer and the lower the risk, the cheaper your insurance.
Simon says investors are choosing higher excesses to keep a lid on premiums.
Josh and Sam’s premiums are $2200. This is for their Auckland property which has a $700 excess. But if they choose to drop their excess to $400, their insurance premiums might go up by $300 a year.
So you might increase your excess to $2.5k. That might save you another $200 a year on your premiums. If you have a higher excess, your premiums are lower, but you take on more risk.
Your sum insured is how much you get paid if your house is severely damaged.
Effectively it’s the cost to rebuild your house, plus the GST.
Simon says one option he considers is reviewing the sum insured. There is a chance that you have insured your house for more than you need to.
If that’s the case, then it may make sense to insure your house for less. That will also bring down the cost of your premiums.
But, don’t do this willy-nilly. This is a big deal. You don’t want your house to burn down then discover you can’t rebuild because you didn’t insure it for enough.
You can check your sum-insured online, using the Cordell calculator.
There are two types of insurers:
Simon reckons you’re probably within $500 to $1000 of each other, regardless of what insurer you use, so there’s no great difference.
In terms of the broker-only insurers, there is a bit more of a gap. NZI can be more expensive, but Vero is competitively priced with direct insurers.
But because you’re working with a broker, they will help choose the best insurer and policy for your needs.
I often find it useful to talk to an insurance adviser. They can get you the right insurance. They’ll look at multiple insurance companies to see which one will suit you.
So, you’ll probably get a more informed deal if you go with a broker.
Insurance policies chop and change, depending on who you go with, and a broker can explain these differences and changes.
Sometimes investors assume they’re covered for something, but it might not be written in the fine print. Then, when it comes to a claim, you realise you’re not getting a payout.
Insurance advisers are also free. They get paid commission by the insurance companies they work with. So, they work to get the best deal for you (not for the commission).
Licensee (Eligible Officer) and Team Leader for Opes Property
Brittany graduated from the University of Auckland with a Bachelor of Property and later became a qualified financial adviser. She's now the licensee (eligible officer) and team leader for Opes Property.
