If you’ve got a rental property, should you consider landlord insurance? Tim Grafton, from the Insurance Council of New Zealand, gives the pros and cons.
What is landlord insurance?
Landlord insurance is a type of domestic policy which covers a property rented out to tenants. It can only be taken out by a property’s owner.
What it covers
It generally covers all the same things house insurance covers, including sudden and unforeseen damage to:
• the house itself
• any outbuildings
• permanently installed fixtures/fittings
• fixed carpets
• underground services
• recreational features, such as pools.
It may also include cover for:
• loss of rents
• landlord’s contents.
Liability cover is usually limited to sudden and unforeseen damage that happens to a third party’s property stemming from your ownership of the rental or that you cause to your tenants’ property.
Loss of rent cover is commonly available, either as part of a standard policy or as an optional extra. This benefit usually kicks in when a house becomes unfit to live in due to an insured event, such as a fire or earthquake. Some insurers also provide additional cover for loss of rent, such as when tenants leave without notice.
Landlord contents cover is usually a limited amount of cover for fixtures and fittings not permanently installed and left in the rental property for the use of tenants.
What it doesn’t cover
Limits to the sum insured and exclusions vary so it’s best to check your policy to understand exactly what you’re covered for and what limitations and exclusions there are on it.
It generally does not cover:
• parts of the property used for conducting business or under construction or renovation
• temporary structures
What to think about
If you have landlord insurance on your rental property, you’re covered for natural disasters under the EQC Act. As EQC provides cover for land, which private insurers do not, then in the event of a disaster, you’ll be entitled to financial assistance to repair both your property and the land underneath and immediately surrounding it.
If you have landlord insurance, it may also mean your tenants aren’t financially liable for any accidental damage they cause. Under current law, if a tenant accidentally damages a landlord’s property and that property is insured, the tenant does not have to pay for it – not even the excess. This isn’t a reason not to be insured, though. Insurance is reliable and the peace of mind it brings can be priceless.
It’s worth noting that the Residential Tenancies Amendment Bill (No.2) is currently going through parliament. If it passes, tenants will be liable for the lesser of either the landlord’s insurance excess or four weeks’ rent if they do accidental damage to a property.
Things to watch for
Individual policies vary from insurer to insurer, so it’s always best to ask around about the policies on offer. Check what is and isn’t covered, including limitations and exclusions. Make sure whatever policy you choose suits your situation, and the situation of your property and tenants.
If you’re uncertain what a policy covers, call your insurer or broker – they’ll be happy to explain policy details to you.
First published 19 November 2018
Story by Tim Grafton, chief executive of the Insurance Council of New Zealand
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.