Insuring your own home is fraught with traps. And it’s doubly hard for landlords. While homeowners face risks such as under-insuring their homes or not being covered for gradual damage, landlords have a whole lot more to worry about.
It can be a costly mistake to make, but many DIY Landlords are inadvertently voiding their insurance policies – leaving themselves and their properties at risk!
Insurance changes and policy requirements mean that while landlords may have a policy, they may not have the cover necessary to make a claim (if required – or their cover may not be as comprehensive as they first thought).
To help you avoid a potentially pricey mistake, we’ve compiled this list of the top 10 reasons the DIY Landlord commonly voids their insurance.
Many investors do not have the specialist landlord insurance cover needed to protect their property against all possible outcomes (including loss of rent, intentional damage, meth contamination, etc). Specific landlord policies are designed to cover additional tenant-specific risks that a regular home owner’s policy does not.
Renting your property to the wrong person can potentially cost you thousands.
Did you obtain satisfactory identification references from your tenants, check your tenant’s credit and Tenancy Tribunal history? Some insurance policies require this – as well as methamphetamine checks between and during tenancies, a clear meth test at the beginning of a new tenancy, inspections at regular, and specific, intervals throughout the year as well as photographic evidence of a property’s condition – simply to put the onus back on the tenant should there be a problem. (Insurers often also require specific actions if the rent is in arrears, or you become aware of any suspicious or illegal activity.)
While it might seem like a great idea to close in a garage or add an extra bedroom, any unconsented extension or conversion must be reported to your insurer, and may void your insurance (especially if any future damage is directly related to any substandard renovation or extension work).
4. Not reading the fine print
You may have a policy – but do you have the cover you might need? Are you covered for specific tenancy related damage, meth contamination, loss of rent, etc – and what’s your excess? Do you have the correct chattels cover – while your policy may cover carpet and the basics – does it cover the TV, whiteware, beds, etc?
Look too at how your policy classes an ‘event’ and subsequently how excesses are placed on this. In the hypothetical example of a tenant smashing a number of holes in the walls of a property, some policies will deem each hole to be its own event and therefore come with its own excess payment, whereas others will actually look at the situation as a whole and place only one excess on the entire event of numerous holes. (Remember too that you will be required to maintain a current insurance certificate if the property has a chimney. )
Insurance can easily be bought over the phone or online, but signing up to a policy is done so on the premise of ‘good faith’ – with the onus on you to disclose any factor which may increase the risk to the insurer.
Both deliberate and accidental non-disclosure can be treated in the same way: with a policy voided, or claim declined. (If you are unsure about whether an issue should be disclosed or not, ask your insurer.)
Keep in mind that for robust insurance cover you may need to include, and pay extra for, insurance adds ons which cover things such as theft, deliberate tenant damage, damage to any of your contents left in the property, and loss of rent due to tenants vacating without notice.
The sum insured is the maximum amount your insurance company will pay in the event that your home is totally destroyed or badly damaged. There is no guarantee that the sum insured will be sufficient to cover the costs of rebuilding your property.
Many people simply insure their property for the purchase price, our Council valuation – while the cost of rebuilding can greatly to these figures. Online calculators are also regularly used, but are not nearly as reliable as engaging a professional such as a valuer, quantity surveyor, architect or builder who can provide an Insurance Valuation for rebuild purposes – taking into account too the Council fees, professional fees and demolition costs.
Good record keeping will help you in the event of a claim, as you will generally need to prove when the incident occurred – ie. did it happen during the period of insurance? … and during which tenancy? – Again, this comes down to completing (and documenting) your routine property inspections, regular meth testing before, between and during tenancies.
It’s an unfortunately fact that malicious damage by tenants does occur and sometimes even the definition of ‘malicious’ (versus ‘accidental’) can come into question.
Malicious, or intentional damage will not be covered automatically by your policy. Sadly landlords often lose rent following malicious damage as it’s not always possible to re-tenant a property the day the old tenant leaves – especially if there is repair work to be done. Unless your policy (or policy add-on) covers this . (Most policies cover landlords for loss of rent following accidental damage such as fire or flood. Even so it’s worth scratching beneath the surface because the dollar figure varies greatly.)
(In addition to the above it is important for Landlords to understand the way that the Tenancy Tribunal views tenant liability for accidental or careless damage caused to the property they inhabit. Accidental or careless damage had previously been a tenant responsibility. Changes mean that now, where landlords are insured against loss or damage to their property and the loss or damage was caused by an accident or even negligence, the Tenant has the benefit of using the Landlord’s insurance to remedy this. Insurers and Landlord’s cannot recover any loss from the Tenant’s, including excess amounts required under any existing policy cover the Landlord may have. – These changes are significant and illustrate the importance of having appropriate insurance cover.)
It can be hard to keep on top of maintenance at the best of times, and doubly hard if you don’t know a problem even existed in the first place. Unfortunately insurers can, and do, turn down claims where poor maintenance of the property has caused or exacerbated damage. It comes down to keeping on top of your inspections, routine maintenance and property checks and keeping the lines of communication open with tenants who can alert you of any cause for concern.
Property management has become a specialised field with vast legal implications, and the need to have your property managed by a professional is now more important than ever
Insurance companies across New Zealand are reacting to the ever increasing claim numbers and have implemented many changes over the last 12 months when it comes to investment properties, including increased cost of premiums for landlords, higher excess amounts, and a lowering of claim caps to levels where in many instances your cover may not pay for all remediation costs.
Although not a legal requirement, we advise all landlords to have comprehensive insurance to cover both their property and the tenancy (these are often two different policies). Investors need to be careful to check their policy wording and the cover that is offered, particularly now around the areas of methamphetamine contamination and its associated costs, tenant liability for careless or accidental damage and also inspection frequency requirements.
Choosing to have your property professionally managed by our team of accredited property managers will provide you access to insurance policies offering far more comprehensive cover than what is available to a privately managed property – while providing other benefits such as lower, or less frequent, excess costs than many generic landlord insurance policies.