Build-First Safety: Insurance Essentials For Geared Property Investors

If you’re geared into property, insurance is not optional padding – it’s a second line of defence after your cash and offset buffers. The core protections you need are: solid building and landlord insurance on every property, income protection that can cover stressed repayments for at least two years, and life/TPD cover matched to your debt and family needs. Put those in place before you add more leverage.

Insurance and cash buffers work together to protect a geared property portfolio.

The non‑negotiable policies for geared investors

Think in two layers: protect the properties and protect the person funding them.

1. Building and landlord insurance – your portfolio shock absorber

For houses and most townhouses, building insurance is mandatory if you have a loan. Landlord insurance is the bit many geared investors still skimp on – and regret.

At a minimum, landlord policies should typically cover:

• Malicious or accidental tenant damage
• Loss of rent from default or certain insured events
• Legal liability (e.g. tenant injury claims)

On a $700,000 house with an 80% LVR ($560,000 loan), even a $40,000 damage event could push you into refinancing or forced sale if you’re already near your cashflow limit. A decent landlord policy is often under $1,500 p.a. – cheap compared with one bad tenancy.

For units, the strata policy usually covers the building, but not your flooring, paint, blinds, or liability as a landlord. You still need contents/landlord cover for your lot.

2. Income protection – protecting the repayment engine

Your tenants don’t service your loans – your income does. With APRA’s 3% serviceability buffer baked into lender calculators, most geared investors are already running close to the edge on paper. A long illness or serious injury can tip that over.

Consider:

• Household gross income: $200,000
• Total loans: $1.2m across home and investments
• Stressed P&I repayments at +3%: ~ $8,000 per month (illustrative only)

If one partner loses their $120,000 income for a year, that’s a $7,000–$8,000 monthly after‑tax hole. Income protection that replaces 70% of that lost income can be the difference between holding and selling.

Key settings to think about with your adviser:

• Benefit period – aim for “to age 65” or at least 5 years if you’re heavily geared.
• Waiting period – 30–90 days; match it to your cash/offset buffer so you’re not overpaying.
• Agreed vs indemnity – post‑reform, most new policies are indemnity; self‑employed investors need clean financials so the benefit actually matches expectations.