Do You Need Landlord Insurance in New Zealand?

It is not compulsory, but that is rarely the real question

No law requires you to insure a rental property. If you have a mortgage over it, though, your lender almost certainly requires building insurance as a condition of the loan, so most owners are insured for the structure whether they thought about it or not.

The question worth asking is a different one: if the property were damaged tomorrow and sat empty while it was repaired, could you carry the repair bill and the lost rent at the same time? For most owners the answer is the reason this cover exists.

A standard house policy is not written for a rental

House insurance is priced and worded on the assumption that the owner lives in the home. Someone living in their own house does not maliciously damage it, does not stop paying themselves rent, and is not a stranger selected from a tenancy application.

So the risks that actually cost landlords money tend to be excluded, capped or simply absent. Tenant damage, loss of rent and methamphetamine contamination are the three that come up again and again.

There is a more serious version of this problem. If you rent out a property insured as an owner-occupied home and have not told your insurer, you may have a disclosure issue that affects claims generally - not only tenant-related ones. Whatever you decide about landlord cover, tell your insurer the property is tenanted.

The four weeks' rent cap most landlords have not heard of

This is the part that surprises people, and it is the strongest single argument for the cover.

Under the Residential Tenancies Act, where a tenant damages a rental property carelessly - as opposed to deliberately - their liability is capped. The cap is set at four weeks' rent or the landlord's insurance excess, whichever is the lower amount. Careless damage beyond that is not recoverable from the tenant.

Work that through on a real number. A careless kitchen fire or a serious water escape can run to tens of thousands of dollars. If the weekly rent is $600, four weeks is $2,400. The rest is not the tenant's problem, and without the right cover it is yours.

Deliberate or intentional damage is treated differently and the tenant remains fully liable. But proving intent, and then actually recovering money from someone who has damaged a property on purpose, is a long way from straightforward. A Tenancy Tribunal order is not the same thing as money in your account.

What landlord insurance adds

Tenant damage is the headline. Policies differ on whether they cover deliberate and malicious damage or only accidental damage, whether damage caused by a tenant's guests is included, and what limit applies for each event. These distinctions decide claims.

Loss of rent comes in two forms, and it is worth knowing which you have. The first covers rent while the property is uninhabitable after an insured event such as a fire or a flood. The second, usually called rent default, covers rent when a tenant stops paying or abandons the property. The second is frequently an optional add-on rather than part of the standard policy.

Methamphetamine contamination cover pays for testing and decontamination up to a limit. The condition that catches people out is the baseline test: many insurers expect a pre-tenancy screening result, because without one there is no way to show the contamination arose during this tenancy rather than before it.

Landlord liability covers your legal liability for injury or damage connected to the property - the kind of claim that arises when someone is hurt on a stairway or a deck you own.

What it will not do

Fair wear and tear is not an insurable event. Carpet that has reached the end of its life, tired paintwork and the general effects of occupation are maintenance, and no policy treats them otherwise.

Your tenant's own possessions are not your insurance's problem. They need contents cover of their own, which is worth saying plainly in writing at the start of a tenancy so there is no argument about it later.

And if your property sits within a body corporate, the building may already be insured under the body corporate's policy. Confirm what that policy actually covers before you insure the same thing twice - what it almost never covers is the landlord-specific risks above.

How to compare, and where a broker helps

Premium is a poor way to choose here, because the cheaper policy is very often the one with lower tenant damage and meth limits, or the one where rent default was quietly left out. Compare the limits, the excesses and the conditions side by side, on the same risk.

Ask four questions of any policy: does tenant damage include deliberate damage and damage by guests, what is the limit for each event; which kind of loss of rent am I getting, and for how long; what does the meth section require of me before a claim, particularly around baseline testing; and what does the policy require me to do about tenancy agreements, inspections and records.

That last one matters more than it sounds. Insurers will ask for evidence at claim time. Move-in condition reports, dated photographs and a record of inspections are what turn a disputed claim into a paid one.

This is the sort of comparison a broker does properly, across the market, in one go - and if something does go wrong, the same person argues the claim for you. If you own more than one rental, several properties can often sit under one programme, which is simpler to manage and can be better value than separate policies.