Premium (insurance)

The insurance premium is the amount the policyholder pays to the insurance company for insurance coverage. In the real estate sector, this primarily applies to building insurance, contents insurance, natural disaster insurance, and landlord liability insurance. The amount of the premium depends on the insured risk, the insured value, the location of the property, and the agreed-upon coverage amount.

Premium Calculation for Property Insurance

For homeowners insurance, the premium is calculated based on several factors:

• Insured value: Typically the sliding replacement value (reconstruction cost based on the current construction price index) - protects against underinsurance
• Construction type: Solid-construction buildings have lower premiums than wood-frame or half-timbered structures
• Year of construction and renovation status: Older, unrenovated buildings have higher premiums
• Location and risk zone: Areas at risk of flooding and heavy rain (ZÜRS classes 3 and 4) pay significantly more - or may not receive a quote at all
• Deductible: A higher deductible lowers the premium but increases the owner’s risk in the event of a claim
• Special risks: Oil tanks, solar panels, and swimming pools can increase the premium

Regional factors are playing an increasingly important role: Areas with a higher risk of natural hazards (flooding, heavy rain) pay significantly higher premiums, or natural hazard insurance is hardly offered there anymore. The insurer’s premium calculator also takes into account deductibles, coverage limits, and special risks.

Relevant Types of Insurance for Property Owners

Building Insurance: Covers the building (roof, walls, permanently installed fixtures) against fire, water damage, storm/hail, and optional natural hazards. For rented properties, the premium can be passed on to tenants as an operating cost.

Homeowner and Landowner Liability Insurance: Protects the owner against liability claims by third parties-e.g., a fall on an icy sidewalk, falling roof tiles, or damage caused by unresolved construction defects. This insurance is essential for every property owner, especially landlords.

Rent Loss Insurance: Covers losses if tenants fail to pay rent and eviction proceedings must be initiated. Covers losses from unpaid rent during eviction proceedings (often lasting several months) and damages caused by rent dodgers.

Construction risk insurance (construction performance insurance): For owners who are renovating or building-covers unforeseen damages during the construction phase (water ingress, vandalism, defective workmanship).

For rented properties, all premiums are either apportionable as operating costs or tax-deductible as business expenses.

Premium Adjustments and Indexation

Many residential building insurance policies include an annual premium adjustment based on a construction cost index (adjustment clause). If construction costs rise, the premium increases automatically-without leaving gaps in coverage. Property owners should be aware of this clause and regularly compare premium trends with market offers.

In recent years, construction costs have risen significantly-leading to noticeable premium increases. At the same time, severe weather events and flood damage have caused natural disaster insurance to become more expensive in certain regions or led providers to exit the market. A policy comparison every three to five years is worthwhile in many cases-but when doing so, don’t just look for the lowest price; also consider comprehensive coverage and the quality of claims settlement in the event of a loss.

Practical Tip for Property Owners in Nuremberg and Franconia

In Franconia, severe weather events such as heavy rainfall and hailstorms have increased in recent years. Property owners should check whether their home insurance includes natural hazard coverage-while this is not mandatory in Bavaria, it is strongly recommended. Natural hazard coverage is particularly essential for properties on slopes or near bodies of water in districts such as Nürnberger Land, Ansbach, or Weißenburg-Gunzenhausen.

Anyone looking to purchase new insurance should obtain quotes from at least three providers and pay close attention to the scope of coverage (all four basic risks plus natural hazards?) and the claims settlement terms (replacement cost coverage?). If needed, we can refer you to independent insurance advisors in the region.

Frequently Asked Questions

Can I pass on the insurance premium to my tenants?

The premium for homeowners insurance can be passed on to tenants if this is agreed upon in the lease agreement (Section 2 No. 13 BetrKV). Homeowner and property owner liability insurance is also passable on to tenants. Rent loss insurance, on the other hand, is a self-financed form of protection for the landlord and is not passable on to tenants-it protects the landlord’s interests, not the tenant’s property. Be sure to include a comprehensive operating costs clause in the lease agreement that clearly lists all passable-on items.

What happens if I have underinsured my property?

In the event of underinsurance, the insurance company will only pay a proportionate amount in the event of a claim-based on the ratio of the actual insured value to the insured sum. This can lead to significant gaps in coverage in the event of major damage. A current valuation (floating replacement value) by the insurer or an appraiser protects against this risk. Many insurers offer automatic value protection clauses that adjust the insured value annually.

How do I effectively compare home insurance policies?

Key comparison criteria include: coverage amount and insured value, included risks (fire, water damage, storm, natural disasters), deductible, premium and payment method, claims settlement and customer service, as well as the basis for settlement (current market value vs. replacement cost). Independent insurance brokers or comparison websites can help you get an overview of the market. Be sure to compare the scope of coverage-a cheap policy with poor claims settlement quality can end up costing you dearly in the event of a claim.

What insurance policies does a real estate investor absolutely need?

For a landlord, at least the following insurance policies are essential: Building insurance (with natural disaster coverage), Homeowner and property owner liability insurance, and-depending on risk tolerance-rental income loss insurance. Optional: construction risk insurance during renovation work, legal protection insurance for tenancy law issues. Those with multiple properties should check whether a package policy is more cost-effective than individual policies.

How have premiums for building insurance in Bavaria developed recently?

Premiums for home insurance have risen significantly in Bavaria and nationwide between 2022 and 2026. The main drivers are sharply increased construction costs (replacement value), frequent extreme weather events-particularly storms and hail-as well as the growing proportion of claims resulting from heavy rain and flooding. Many insurers have raised their rates by 15 to 30 percent; some providers have withdrawn entirely from certain high-risk regions. In Franconia, this primarily affects areas along the Pegnitz and Rednitz rivers and in the Franconian Lake District, where the flood risk is classified in higher ZÜRS categories. For property owners in these areas, we recommend obtaining quotes from at least five insurers and carefully reviewing the scope of natural hazard coverage-not all policies provide the same level of coverage for sewer backflow, rising groundwater, or snow load. An independent insurance advisor can provide a much broader market overview here than a single broker.

Back to the Real Estate Glossary.