Does your holiday home have the correct insurance coverage for short term holiday rental? Many property owners believe that because they have insurance, they will be covered. What needs to be considered is the actual extent of that cover. Claim time is when your insurance matters, and gaps in your insurance are best dealt with now, before a loss occurs, otherwise you could find yourself without the cover you expected.
We made some calls to New Zealand’s top-3 home insurers, AMI, State Insurance and Tower Insurance. For the purpose of our evaluation our “control property” was a 130 sq.m. 1960’s weatherboard bach in Mount Maunganui.
We were specifically interested in how these insurers handled what we consider to be the top three areas where standard policies can fall short. So we asked:
1) Do you cover damage/theft by short term holiday rental guests?
2) If my holiday home is empty for a period of time is it covered?
3) If someone has an accident at my house is my liability covered?
AMI refused to insure the property once they found out that it was to be rented out as short term holiday accommodation. We said, “so AMI will not insure these types of properties” their response was, “No they would not insure them” and they then suggested we go to IAG (which is NZI and State).
Total call time: 7 minutes.
We explained the type of property and they said that they wouldn’t provide cover under their dwelling policy. Their reasoning was that because the property was rented out for short term tenancies it was a business rather than a rental property or holiday home. They referred us to the State Business division. State Business said that they were prepared to cover the property under a commercial policy with a specified sum insured, with added business interruption (for loss of rental) and liability cover. The cost of this business package would be $1,359 (incl. GST)
They referred us to their policy wording for answers to our questions.
Total call time: 35 minutes (including 15 minutes on hold).
TOWER would cover the property under a holiday home/rental property policy, as long as there were less than 10 bookings per month. TOWER would not insure if there were to be more than 10 bookings per month.
Answers to our questions:
1) Yes the policy does cover damage and theft by short term holiday tenants. Malicious/deliberate damage by tenants is covered by the policy, but this only covers the house and not the landlords fixtures and furnishings. The total excess for each malicious/deliberate damage claim appears to be $1,100.
2) The property is covered while vacant but once the property is vacant for more than 60 days cover is suspended immediately unless Tower are advised. They will then continue to provide cover at their option and different terms may apply, e.g. a higher excess.
3) Your liability as an owner is covered up to a maximum of $2,000,000, with bodily injury and legal fees cover limited to $100,000 each. We were directed to policy wording for full details of this cover.
The annual premium for our holiday home was $665.93 (incl. GST).
Total call time: 30 minutes
Update provided by TOWER Insurance on 04-Apr-2012:
TOWER is able to insure holiday homes under a standard dwelling policy. However, holiday homes that are used for short term rentals are generally not able to be insured under this policy as short term rentals are considered a commercial activity. TOWER currently does not have a commercial policy that can cover a property used for commercial activity with a residential aspect to it.
TOWER may be able to offer cover for a house if it is used primarily as a holiday home and is only rented out for a certain period in the year, for example, over the summer season. This would be considered on a case by case basis and terms (if any) applied accordingly.
Please call TOWER on 0800 808 808 to discuss your situation.
The problem with having a standard dwelling insurance policy is that you are exposing yourself to a number of significant risks. To highlight a few of these:
As a property owner and landlord you face some considerable risks. Because these risks can jeopardise the sustainability of your investment it is very important that you manage them correctly. Having just any insurance policy does not mean you’re automatically covered, good risk management is about putting in place a policy that will cover these insurable risks.
Check your existing insurance. Don’t think that just because you’ve got insurance that you’re covered. Gaps in your insurance cover are best dealt with now, before you have a claim.
DISCLAIMER: The information contained in this article is generalised insurance advice only. Please consult with your insurance company or broker about your specific needs.
Gaps in your insurance are best dealt with now, before a loss occurs, otherwise you could find yourself without the cover you expected.
Bookabach has teamed up with Initio and Lumley General Insurance to provide an insurance product which specifically addresses the concerns raised in this article.
We ran the numbers on our "control property" and came up with a quoted insurance premium of $478.40 (incl. GST) with a Standard excess of $250 and Malicious Damage excess of $500.