Finding Insurance That Covers Everything
A building and contents policy on your rented property may not cover all losses unless you have extra specific options, writes Greg Watson.
24 October 2023
Many people I talk to believe they have the cover they need, as they have chosen to let their insurer know a property is rented. However, it pays to check if the policy protects you against unforeseen tenancy-related events that can cause financial loss. After all, as soon as tenants are in place more risk is added to the mix.
The building and contents policy on your rented property may not cover all your loss unless you have extra specific options. There are two ways to do this: add these options to the existing cover you have through your current company or engage a specialist landlord insurer to run a policy alongside your current one to “fill in the gaps”.
Here are six reasons I feel you need landlord insurance (with extra options):
Circumstances Can Change
Yes, sometimes a tenant’s circumstances can change for the worse. Examples include losing a job and income causing financial hardship; drug-taking and then life goes financially downhill; a relationship split where they can no longer afford rent; or just abandoning the property to head overseas.
As a landlord, these things are almost impossible to predict, and I have seen all of these over the years. Suddenly, the tenant’s ability to pay rent changes, and how will you pay the mortgage then? A quality landlord insurance cover will protect you against tenant rent default should they not be able to pay.
When it comes to a tenant getting behind on their rent, we must take legal action, and this can take considerable time, particularly if there’s a backlog of hearings should we need to take the matter to the tribunal.
Depending on lease type, a quality landlord insurance policy will protect you against delays where a larger loss of rent happens.
Your basic building policy will protect you against accidental damage. However, you also need cover for intentional, deliberate damage to property and contents caused by the tenant (or their visitors). Further, you can be covered if the tenant steals contents (carpets, curtains, light fittings).
Even if you are screening tenants carefully there’s still a small risk a bad tenant may get through.
Production or use of drugs can happen and with the requirement to give 48 hours’ notice of an inspection, landlords may be none the wiser. In any case, should drugs get produced inside your rental property like methamphetamine, the costs are substantial to rectify, which include decontamination cleaning and/or renovation.
With costs to rectify in the tens of thousands of dollars, standard building insurance may not sufficiently cover against this type of loss or event, so this is a good topic to discuss with your insurer.
Death Of A Tenant
Regretfully, tenants can and do die inside a rental property. Over years of working in the industry I have experienced this several times. Sadly, it can take some time for a body to be discovered.
Should enough time elapse forensic cleaning will be required and, like drug production cleaning, the costs will be substantial and may include replacing carpets, curtains and fittings.
The loss of rent is another consideration.
If a tenant suffers loss through a fault in the home, like a leaking roof damaging scientific equipment, the landlord can be held responsible. In a worst-case scenario, a fault or hazard could cause severe injury or death. As landlords we must adhere to a lot of legislation, so unless you have encyclopedic knowledge of law, having cover in this area helps with peace of mind. It’s possible to have insurance for these scenarios, but it is not usually standard cover.
Take time to review your policy or talk to your insurer or broker. Match your policy to what you feel is most important, so when you make a claim you know your insurance will do what you hope it will. ν
Greg Watson is an experienced property manager who excels in providing informed advice and continuously improving the property management service. He is a recognised industry expert, winning national awards and contributing to industry standards. Phone 06 353 7274, www.watsonrealestate.nz