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Top 5 Insurance Mistakes

Investors make five key mistakes when taking out cover on their rental properties, Rene Swindley explains.

By: Rene Swindley

1 November 2019

Property is the biggest investment most Kiwis will make and naturally, when it comes to arranging house or landlord insurance, customers want peace of mind for their asset. Some property owners don’t ask for advice from their insurer and remain unaware of the following avoidable pitfalls:

1 Saving Money On The Premium By Reducing Sum Insured

On face value, it seems to make sense: reduce the sum insured to pay less premium. You could justify this by calculating that the odds of having a total loss are slim . . . But therein lies the issue: what if you do have a total loss? Would you be able to rebuild the house (and its site improvements, such as driveways and fences) if the insurance proceeds were less than you needed? Insurance is about getting you back on track – replacing like for like, and ultimately, saving you from financial ruin by properly protecting your investment. When calculating your sum insured, you need to know you’ll be covered in a worst case scenario. If you are wanting to save on premium, insure the house for its correct replacement value and consider a high excess.

2 Not Knowing The Replacement Value Of The Property

Some property owners assume that insurers know how much it will cost to replace their home. The reality is that while an insurer might provide a guide, they don’t actually know your house like you do and they are not materials cost specialists. When you get a quote from Initio, the sum insured is based on a standardised per square metre rebuild cost, but it’s important to know that all houses are different: some will cost a lot more than this, and in those cases the sum insured should be increased.

Also, take into account improvements such as driveways, fences, and pools when calculating the replacement value. Initio.co.nz provides tools, such as online sum insured calculators, to assist property owners with calculating their rebuild value. If you want to be precise, consider engaging a quantity surveyor such as a construction cost consultant.

3 Not Choosing The Right Excess

A large number of property owners are happy to avoid the claims process by not claiming for smaller losses, and just repairing or replacing low-value losses themselves. If this is you and you have a low excess (of say, $400), we recommend increasing this to $1,000, or even $2,000 to save on your premium. If you wouldn’t bother claiming for anything less than $1,000, why would you waste your money insuring it? On the flip side, if you wouldn’t be comfortable contributing the first $2,000 each time you claim, then a lower excess will be best for you.

4 Choosing The Cheapest (Or Most Expensive) Policy

Cheap doesn’t necessarily mean good. To ensure it adequately protects your most valuable asset, you need to make sure that you have the right cover. If for example, where the property is tenanted, a householders policy won’t cover you for damage caused by tenants. But the most expensive policy isn’t necessarily the best either. You could be paying extra for a brand name, its marketing budget, or bells and whistles that are simply not relevant to your situation. Or, you could be paying a middleman to clip the ticket.

5 Thinking House Insurance Should Cover Everything

There are some losses not covered by a house insurance policy such as leaky house syndrome and acts of terrorism. Other risks might require an additional policy, such as contract works policy if you are doing renovation work (removing the roof or exterior cladding for example). Things like wear and tear are not covered either; a loss needs to be caused by a sudden and accidental event; insurance is not designed to pay out every time the property needs maintenance work done or a tenant leaves the house messy and worn. Being a rental property owner myself, I know that these things are just part and parcel of being a landlord. Consider that if your policy covered every possible loss, the annual premium would be tens of thousands of dollars.

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