Property investors and homeowners are in danger of being underinsured

MCG Quantity Surveyors said Australian property investors and homeowners are at risk of an insurance blow.

MCG Quantity Surveyors director Marty Sadlier has warned a surge in construction costs and labour during COVID-19 has put property investors and homeowners at risk of being underinsured.

“Property owners could be left hundreds of thousands out of pocket should an unfortunate event have them calling their insurance provider,” Mr Sadlier said.

“Unfortunately, most will only discover they are woefully underinsured when it’s too late.”

He explained construction and labour cost increases over the past six months have been extraordinary.

“Our estimates indicate the cost of building an average Aussie home in capital cities such as Sydney, Brisbane and Melbourne has risen by over 10 per cent in the past six months,” Mr Sadlier said.

“Given the median construction cost for homes in these cities is around $485,000 that’s a price rise of over $48,500 in half a year.

“But this is just an average. Many properties in inner-city suburbs have construction costs of well over $1 million. In addition, the average construction program on these sites have increased by as much as an additional 16 weeks due to material and trade shortages.”

Mr Sadlier said there were many cities and towns where costs have gone up by at least 15 per cent for the end-user, once the delay costs were accounted for.

“Insurance is also supposed to cover additional outlays such as professional fees, council charges levees and even emergency accommodation – all of which add to the end amount,” he said.

Mr Sadlier said inadequate insurance was already rife across the population but current conditions were making this far worse.

“The Insurance Council of Australia are quoted as saying that prior to the pandemic, 83 per cent of property investors were already underinsured,” he said.

“But given the recent hikes in materials and labour costs, I’d be surprised if we weren’t closer to 100 per cent of owners at risk.”

Mr Sadlier said property owners can undertake a three-step solution to ensure they’re adequately covered and not disadvantaged.

“Number one – you must update your property’s insurance value regularly. At least every year. Secondly, don’t use ‘online insurance calculators’ to assess your property’s replacement cost,” he said.

“We’ve seen real-life instances where online calculators have been more than 65 per cent below the true replacement cost of a dwelling. Keeping up to date with the construction costs requires diligence and accuracy.

“You should only use professionals, like certified quantity surveyors (CQS), to accurately confirm replacement values for insurance purposes.

“Finally – shop around for insurance options. A hike in value can mean an increase in your premium. Make sure you use a reputable insurance broker to confirm you’re paying the right price for your insurance.”

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