Protecting your investment - a guide to rental property insurance
You may have seen the increased media exposure surrounding the new Residential Tenancies Act which imposes new duties for residential landlords and in response we've had an influx of queries from landlords double checking their insurance requirements.
We have found that there are many questions surrounding rental home policies and how they would respond. When you compare the risk exposures that a tenanted property faces in comparison to your normal home you can understand why additional covers and some basic risk management might be required.
So what are the risks?
The biggest difference between owner occupied homes and rental properties from a risk perspective is a rather simple one. With an owner occupied home you the owner of the property are onsite and able to keep on top of any damage immediately and while you might have a great property manager looking after your rental they're certainly not there everyday. So what are the common risks a rental property faces:
Damage to property by tenants - intentional or unintentional
Stolen property
Loss of rent
Contamination e.g. methamphetamine
How do you manage the risks?
Now that we've talked through what are some of the common risks, take the time to think about your property, what are the specific risks that it might face? Now how do you manage them?
Get regular inspections done and make sure you document them and select your tenants carefully.
If we think about the core difference between rental properties and owner occupied being that you're not there everyday, then the simplest way to manage the difference in risk is to carry out regular inspections. This would be done by either you or your property manager, but should always be regular and always be documented.
It's handy to document your visits so that any issues are noted and you have a record should your insurer or the tenancy tribunal want to know what's gone on. In most cases you are required to meet the landlord’s obligations under your policy, one of which is often to meet basic inspection requirements.
It sounds simple but vet your tenants!
Be methodical when selecting tenants
A casual chat with a potential tenant may give you a feel for how suitable they are. While this is important start, you should be methodical when selecting tenants. Your landlord insurance policy may even require you to show how you selected your tenants when you make a claim.
Here are some tips on finding the best tenants for your property:
Ask them to complete a pre-tenancy application form
Interview them
Check their references
Check their credit history
Check if they've previously been to the tenancy tribunal
For a full guide visit the tenancy.govt.nz
Install a deterrent such as a MethMinder
With meth contamination on the rise many rental home owners are concerned about how their policy will respond. As this is a relatively new exposure and we are all just learning more about it, insurers are updating their policies to cap the amount they are liable for under their policies, whereas before they may have been silent on this.
Certain insurers will not respond if the home has been contaminated over a gradual period and may only respond when it can be pin-pointed to an exact event. That is why it is important and highly recommended to perform a house inspection including a meth test before a new tenant moves in, in addition to the regular documented inspections whilst the home is occupied.
Some clients have found it beneficial to install some sort of deterrent such as a MethMinder through MethSolutions for peace of mind. You may find out more information about this by clicking on http://www.methsolutions.co.nz/
These are just a few things which might help manage the risks but like always we recommend checking your policy wording or contacting your broker to ensure you have a list of all of the obligations and guides from your insurer.
What makes a good rental property insurance policy?
We've said it before, not all insurance policies are created equal. Getting advice from an experienced broker will help provide some guidance around what your needs are. Some benefits to consider under a rental home policy may include the following or can be purchased at an additional cost:
Malicious damage by tenants
Loss of rent/rent protection
Contamination clean-up costs
Landlord’s furnishings
Please talk to your broker to check whether these are included under your policy or if the policy needs to be extended.