Otago Property Investors Association Inc

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28-02-2017

Landlord's Insurance Q & A

Q: Why do property owners take Landlord’s Insurance?

A: We have found that landlords tend to be quite sensible with their insurance decisions. The main driver for getting insurance is basic protection against the big loss risks such as fire, flooding, earthquake, and other natural disasters.

Sometimes current events will motivate landlords to seek cover for specific risks such as meth, or damage by tenants, but the “average landlord” still looks mainly to get cover for those big loss risks.

Q: How does the fear of meth contamination compare to the numbers? Is the fear justified?

A: If we look strictly at claim statistics to determine whether fear of a risk is justified, then no. The most common claims (approximately 30%) we have seen are for internal water damage from leaking pipes and overflows. Not meth. Weather-related claims make up another 20%, while deliberate damage by tenants takes up another 15%. Surprisingly, meth contamination only makes up about 3% of overall claim numbers.

That is the number of claims. Now, if we look at claim costs, then the story is dramatically different. While water, weather, and deliberate damage claims make up 65% of all claims, they only account for 30% of costs. Fire, on the other hand, is just over 5% of claims but makes up almost 60% of all claim dollars paid. Meth again is a small feature, contributing to 6% of overall cost.

Q: What is the biggest risk for landlords and property owners?

A: The single most common cause for claims is leaking water pipes, especially in older homes where maintain has not been carried out or has fallen behind.

Regarding what is costliest, no surprise that fires caused by wiring/electronics is the most damaging source. One of the most common sources is overloaded multi-plugs and wall sockets starting in a

Q: Insurance is one of those peace-of-mind expenses that people want to have but doesn't want to claim on. What advice is there for investors to manage their insurance costs?

Depending on the provider and type of claims, it is true that too many claims will push up the premium. At the end of the day, insurance is there to be claimed on.

The best approach is to ask your insurer if they have any form of no-claims bonus or increase if a claim is made. While claiming with Initio will not penalise you in terms of premiums, other insurers may have a different approach. If the claim amount is just over the excess, it is worth considering not lodging.

The best advice to manage your costs is to select as high an excess as you can comfortably afford. This means you are protected against the major events, but due to fewer claims, you will end up spending less overall on your insurance bill.

Q: Are NZ landords adequately insured?

Unfortunately, not always. The Initio philosophy is to provide cover that ticks all the boxes right from the get-go. But insurance is a competitive market and some policies, while cheaper, do not include basic covers such as gradual damage, or even deliberate damage caused by tenants. If you are entirely focused on being a price-chaser than you could become underinsured.

Initio is a proud partner of the New Zealand Property Investors Federation. If you have any questions or comments regarding the article, go here to find out more. 

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