In my experience, very few property owners take the time to carefully read and understand their insurance policies. Who can blame them, up to 100 pages of fine print! You may think you're safe as long as you keep paying the premium each year. Think again! Many property investors are not aware that they need additional cover for tenant related risk. Often they have not been advised that eneral building insurance will not cover damage caused by the tenants, be it intentional or accidental.
After many years in property management and dealing with insurance companies I have become familiar with most policies. I would like to share with you some of the situations my clients have been faced with.
Malicious Damage V's Accidental Damage
Many policies will cover either or but not both, so when it comes time to claim there is a fine line between what is considered an accident and what is malicious. The most recent case I have had with an insurer where a client held policies with the company for more than a decade and had never made a claim until her tenant moved out and left behind a large bleach stain on the 2 year old carpet. The insurance company responded suggesting it was accidental damage we they only cover malicious/intentional damage. We responded asking how do they know the tenant didn't deliberately tip bleach onto the carpet? They replied "you will have to prove that they did, it is not up to us to prove it was not an accident, as the insurer make judgement unless you prove otherwise. This is only one example with one insurer, we have dealt with many similar claims.
Loss of Rent V's Rent Default
Many of our new clients hand over their insurance policies and tell us they have landlord protection, when we review thie cover we often explain they have building insurance and basic cover for "loss of rent" often this means they are covered only if the building is inhabitable for a period as a rusult of a fire, flood etc and cover is an amount while the property is being repaired. The differnece is "Rent Default" is cover if the tenant fails to pay rent and in most cases this is an optional extra on a policy. It doesn't stop there, rent default can have all sorts of exclusions like, if the fixed term tenancy has expired or if the owner fails to issue a notice of breach within a certain period. In addition, if the owner issues a notice to remedy rent arrears/ notice to vacate they are unable to claim past the date the tenant vacates, even though there is no replacement tenant.
Then there are the ridiculous added excesses, one policy I am aware of in particular states they don't pay the first 4 weeks loss of rent and they have a $500 additional excess. In comparison, some insurance policies offer cover with zero excess and they pay from the day the tenant stops paying.
What if the tenant sets fire to the property?
Between inspections and behind closed doors it can be difficult to know what the tenants are up to. Do they smoke inside? Are they easily distracted from a boiling cooking pot in the kitchen? Do they have little ones who are looking to get up to mischief?
The question may well be how your Insurer will respond to your claim once the smoke has cleared. Are you aware that many Insurer's will not pay claims where your tenant has deliberately set fire to your property? Some Insurers exclude this risk under the ‘malicious damage’ section as they do not cover malicious damage caused by the tenant.
This may merely be a misunderstanding by the Insurer’s representative where although excluded under the ‘malicious damage’ section, the risk would in fact be included under the ‘fire’ section. By pressing the Insurer (or by taking it further) it may be that you could have a claim settled successfully that had originally been denied.
The best action of course is to ensure that the policy you have in place will respond to claims when they occur. Ask your Insurer the question ‘If my tenant deliberately burns my property down will I be covered?’, and then judge their answer accordingly.
Having the right insurance in place is far more important than saving a few dollars on the premium each year. Our office strongly recommends that you take out Landlord Protection Insurance to protect you however we do suggest you ask the right questions ad compare apples with apples.
Take the Risk out of Renting.
