Underinsurance is rife among property owners, including landlords, and tenants, with eight in 10 home owners and renters inadequately insured, according to the Insurance Council of Australia.
While some neglect to properly insure their property in an attempt to save money, others don’t find out until claim time that their cover is woefully inadequate.
Having cover in place is invaluable when things go wrong, but landlord and tenant insurance policyholders need to understand that their insurer can only respond to a loss when the right type and amount of cover has been selected.
Many renters think that their landlord’s insurance will cover their possessions too, but it is a misunderstanding that could prove costly. Landlord cover only applies if the policyholder is found to be liable for the tenant’s losses. To protect their possessions, tenants need their own contents insurance.
When it comes to landlords taking out insurance, they need to determine what type of cover they need. For example, a policy that covers the building, contents and tenant-related issues, or a policy that covers property damage and tenant-related risks but not the building itself, or a policy that covers short-term rental?
In addition to having the right policy, it’s important that they make sure that the insured value is sufficient. Many owners inadvertently find themselves underinsured simply by underestimating how much it would really cost to replace their investment property and its contents.
On the other hand, some owners choose to nominate a lower value believing it is a cost-saving, a move that inevitably turns out to be a false economy if they have to claim.
In one recent case, the owner of an investment property in country Victoria insured the home for $162,000, knowing that the sum was inadequate but saying at the time, “It will be fine, it’s not like the house will catch fire”.
The house did in fact catch fire and was a total loss. The cost to re-build? $350,000.
In the event that a total loss claim occurs, the insurer can only pay up to the insured value nominated in the policy. In this case, the property owner was left out of pocket to the tune of $188,000.
Sadly, incidents of underinsurance are most commonly picked up on large loss claims and there can be ramifications for the landlord, their tenants and you as their property manager.
To avoid finding out the hard way that your clients are underinsured, consider helping them do their homework when selecting a policy and ask the insurer for guidance.
Sharon Fox-Slater is the managing director of RentCover, a division of EBM, which insures 120,000 investment properties around Australia. With over 20 years’ experience in landlord insurance, Sharon’s top priority is customer service and positive customer comments are her biggest marker of success. Despite leaving school at 15, Sharon has forged a ground-breaking career – she was the first woman to become a fellow of the National Insurance Brokers Association. Sharon was honoured to have been included in Insurance Business magazine’s Elite Brokers 2013 list.