Is landlord insurance expensive?

Amidst the cost-of-living crisis, some property investors may be asking themselves: “Is landlord insurance a luxury and an expense I should forgo?"

SPOILER ALERT: The answer is “no”!

The cost of living keeps rising and wages are barely keeping pace with inflation – wage growth was 4.2 per cent over 2023 while the CPI was 4.1 per cent, according to ABS figures.

Faced with this, many people are cutting spending on non-essentials like restaurants, holidays and clothing/footwear and looking for ways to save money.

Insurance will also be in the firing line for some.

The cost of various insurances – car, home and contents, health, life, pet – can represent a large outgoing.

That brings us to landlord insurance…

Landlords are not immune from rising prices – think increasing mortgage payments, higher fees for services like property management and maintenance, increasing utility costs and higher prices for materials and goods which impact the cost of upkeep and repairs.

In light of the rising costs, some landlords may be questioning whether their insurance is an expense they could or should cut.

First, how are premiums calculated?

Before we talk about the cost of policies, it’s important to know how premiums are calculated, or what costs they are made up of.

To calculate premiums for our landlord insurance policies, this is the basic formula: Base rate + Government charges + Admin fees = Total premium (what you pay).

• Base rate – the base rate cost is the underlying amount required to insure a property and is the cost we believe is sufficient to cover the risk of insuring the property.
• Government charges – these are fees that are required by the government, including GST, stamp duty, and Emergency Services Levy, and they differ from state to state. These costs are not determined by us, they are set by the government and get paid to the government.
• Admin fee – this is a fee we charge for arranging insurance. It helps to support the overheads of running the business and all the processes associated with our products and services including settling claims. The fee amount varies depending on the product and is noted on the policyholder’s invoice

How much do policies cost?

There are policies that are contents-only insurance, which means the building structure is not covered.

It includes cover for landlord-owned contents at the premises that are damaged or lost because of an insured event (up to $70,000), plus cover for tenant-related risks like loss of rent and accidental, malicious, intentional or pet damage.

The policy also includes legal liability cover among other protections.

As there is no building cover component, the base rate is a set annual charge depending on the state in which the rental is located.

The government charges are dictated by the applicable state/territory government. A standard admin fee is added.

Across all Australian states, at present (28 March 2023), the average premium for this type of policy is a little over $470 per year ($471.72 to be precise).

Meanwhile, there are policies that include all the protections within the first type of policy, plus cover for the building structure against a range of insured events.

Given the variables associated with covering buildings (like their location, age, construction materials and so on), the base cost is not a standard fee but is instead calculated using the property specifics (including the nominated sum insured).

Government and admin fees are then added.

At the time of writing this, almost 38,000 landlords have their property covered by this type of policy and the current average annual premium is around $1,880 (or exactly $1,884.86).

How does this compare with other types of insurance?

According to mozo.com.au, Australian car owners are paying an average of $1,472 annually to insure their vehicles.

Canstar’s research team has calculated the average annual home and contents insurance premiums across Australia, based on the sum insured values of between $300,000 and $1.2 million for home or building cover, and $50,000 for contents.

The average cost ranges from $1,501 in South Australia to $4,562 in the Northern Territory.

The average cost in Tasmania is $1,873, in Western Australia $1,929, in Victoria $1,940, in New South Wales $2,249, in Queensland $2,831, and in North Queensland $6,427.

When it comes to health insurance, Finder figures show the average cost of gold-level hospital cover is $190.82 per month or $2,289.84 per year (average based on the prices from all states for policies with a $750 excess for a single policyholder, before any surcharges or the private health insurance rebate are applied).

So, is landlord insurance worth the price?

It can be argued that anything that is bought, regardless of how much it costs, is expensive if it’s not put to practical use.

While that may be true for many tangible consumer goods like clothing or appliances or even a chocolate bar if it’s not eaten, it’s not the case when it comes to insurance.

Insurance is designed to financially protect the policyholder from unforeseen events.

Landlord insurance specifically acts as a safety net if your asset is damaged due to an insured event.

It’s ultimately an investment in peace of mind.

Now it’s true that many policyholders will never need to claim on their insurance, but many will.

According to the Insurance Council of Australia, insurers paid out $36.5 billion in claims in FY23, helping millions of Australians recover from the unexpected.

In 2023, EBM RentCover settled more than 5,600 claims worth $49.3 million – that’s an average payout of about $8,800 per claim.

To break those claims down, for example, there were:

• 2,469 claims for loss of rent – $19 million paid out
• 950 claims for damage from natural disasters (flood, storm, earthquake, cyclone, lightning) – $15.9 million
• 991 claims for liquid damage (like when pipes burst) – $6 million
• 472 claims for accidental damage – $2.8 million
• 66 claims for fire/smoke damage – $2.9 million

Undoubtedly, those landlords would say that the insurance was well worth the expense.

Putting the cost of landlord insurance in perspective

For example, our RentCover Ultra policies cost an average of $470 a year (based on premiums on 28 March 2024), that’s $39 a month, $9 a week or $1.29 per day.

For RentCover Platinum policies, the average is $1,880 a year (based on premiums on 28 March 2024), which is equivalent to $157 a month, $36 a week or $5.15 a day.

By comparison, the average Australian household spends $36 a week on alcohol, according to Finder.

According to Statista, the average weekly spend on take-out is between $51 and $72.

The average cost of a medium, basic coffee is about $5 across the country, with prices ranging from $3.50 for an expresso to $7 for a latte.

According to Refinery29, the average cost of a woman’s hairdressing appointment is $202.

And The Sydney Morning Herald found streaming services (like Netflix, Stan, Disney+) costs range from $6.99 a month to $22.99 a month.

So, is landlord insurance expensive?

Although landlord insurance could be seen by some to be an expense that investors could forgo, crunching the numbers reveals that having the protection is less expensive than things like a daily coffee or weekly takeout.

Having cover in place also proves invaluable should a landlord need to make a claim.

Guest Author: This article was written by the team at EBM RentCover and was originally published here. EBM RentCover is one of Australia’s leading landlord insurance providers, protecting more than 150,000 rental properties across Australia.

About Guest Expert Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.