Got insurance? (No, really?)

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.

Holiday home insurance case study

The insurance market is changing, it is now quicker, easier and more cost effective to insure your policies online. So we went online to New Zealand’s top home holiday home insurers, AMI, Tower, AA State, and Initio.  For our case study and for the purpose of our evaluation the ‘control property’ is:

1990’s weatherboard holiday home in Waihi Beach used by the owners, but also rented out to short terms guests. The property has a replacement value of $500,000.

We wanted to see what the process of getting a quote was like with the different insurers.  For every insurer we started with their website. 

We were also specifically interested in how these insurers handled what we consider to be the top three holiday home risks, and areas where we believe standard policies can fall short.

1) Do you cover damage/theft by short term holiday rental guests?
2) Do you cover loss of rental income following a claim?
3) Do you cover Methamphetamine contamination?

AMI

AMI Insurance was up first; nine questions and two minutes later we confirmed through their website that the house was used for short term guests.  It was at this point that we hit a road block and were advised “Sorry we’re unable to complete your quote online. Please call us and speak to one of our consultants.”

After an eighteen minute phone call we discovered that yes, AMI could insure the property. However, when we asked about coverage, we were told: 

✖ No cover for damage/theft by short term holiday rental guests.
✖ No cover for loss of rental income.
✖ No cover for Methamphetamine contamination. 

Here is a summary of the quote we received (without the above covers)

House quote for holiday home
Annual premium: $1,205.51 inc GST
Excess: $400
Cover: Holiday home only cover
Limitation: No cover for losses related to guests
Comment: Based on our communication with AMI it is unclear whether the house becomes uninsured while guests inhabit the property or whether the limitation of cover only applies to guest related losses (eg damage/theft by guests). Either way this does not give us the confidence we want as a bach owner.

The customer support person did advise us that we would need to speak with a business insurance consultant about a commercial insurance policy, which may cover the guest related risks.  So we made the call to AMI commercial.  Thirteen mins on the phone, and then six days later we received our commercial quote:

Commercial insurance quote for holiday home
Annual premium: $3,364.95 inc GST
Excess: $500
Cover: AMI business assets policy wording (although never confirmed to us)
Comment: Cover is designed for business assets and commercial/industrial buildings.  While we were told that the cover would suit our needs it appears that a business assets policy does not include loss of rents, and that a separate business interruption policy would be required.  We get a feeling of uncertainty about this approach.  The premium cost also surprised us.

Tower

Next we tried Tower Insurance. There were twenty questions to answer on the online form. We got through these in about three minutes – after which we obtained a quote. However, after reading the policy wording we found that the cover we required for letting the sample house to short term guests was not provided. So again:

✖ No cover for damage/theft by short term holiday rental guests.
✖ No cover for loss of rental income.
✖ No cover for Methamphetamine contamination.

We spent the next fifteen minutes surfing through Tower’s website to see if there was a better cover option to upgrade to. We tried the Landlords insurance, however three questions later, we were informed that the landlord product did not cover short term holiday home lets. 

House quote for holiday home
Annual premium: $1,274.98 inc GST
Excess: $500
Cover: No cover for losses related to guests
Comment: It is unclear from the Tower policy whether there is a total exclusion of cover while paying guests inhabit the property or whether the limitation of cover is only in relation to intentional damage/theft by guests (ie there would be cover for the fire damage caused by an electrical fault causes a fire while guests are in the property). This uncertainty is no ideal, but either way we do not feel this this policy suits are needs.

AA Insurance

Through AA’s website we answered four quick questions, we were then advised that AA Insurance cannot provide insurance if the house is a holiday rental.  We contacted the AA team via live chat and were informed we could insure as a Holiday Home if we stayed in the property.  This confirmed to us that as well as potentially being uninsured while paying guests were in the property there is:

✖ No cover for damage/theft by short term holiday rental guests.
✖ No cover for loss of rental income.
✖ No cover for Methamphetamine contamination.

When we asked further questions to determine if, while guests were staying at property, the AA policy would provide cover for non-guest related losses like storm damage, the customer support person (via live chat) sent us a link to the policy contract.  We read the policy contract but could not with any certainty answer this question. 

We went back to the quote page and 4 minutes later had a quote for our non-short staying guest holiday home:

House quote for holiday home
Annual premium: $1,717.53 inc GST
Excess: $400
Cover: Holiday home only cover
Limitation: No cover for losses related to guests
Comment: It is unclear from the AA policy wording whether there is a total exclusion of cover while paying guests inhabit the property or whether the limitation of cover is only in relation to intentional damage/theft by guests (ie there would be cover for damage caused by a storm while guests are in the property). This uncertainty is not ideal, but either way we do not feel this this policy suits our needs.

State

By the time we reached the State website a pattern had appeared. After a short investigation we had confirmation that holiday letting was not covered. But we still wanted to get a quote for our holiday home even though we discovered: 

✖ No cover for damage/theft by short term holiday rental guests.
✖ No cover for loss of rental income.
✖ No cover for Methamphetamine contamination.

We needed to answer 18 questions which took about 3 minutes.

Quote: $1,723.01 inc GST
Excess: $550
Cover: Holiday home only cover
Limited cover: Holiday Home Only - No cover for short term guest risks
Comment: Again, we are not sure whether the cover ceases completely when paying guests are in the property or whether the property remains insured but guest related risks (eg loss or rent, damage etc) are excluded.

Initio

Finally, we wanted a quote from Initio. We went straight to their website. The quoting process was incredibly quick – we told the quote calculator that the property was a ‘holiday home that was also rented out’ and answered 7 simple questions, which took about 30 seconds.  The quick quote included a summary of the policy benefits which included: 

✔ $25,000 cover for damage/theft by short term holiday rental guests.
✔ $20,000 cover for loss of rental income.
✔ $30,000 Cover for Methamphetamine contamination by smoking, cover to the insured value of the holiday home for Meth contamination caused by manufacture.

It also included, for free, $20,000 of holiday home contents cover, with an option to add a greater level of cover (up to $220,000) for contents.

Quote: $1,284.31 inc GST
Excess: $400
Cover: Holiday home insurance – including when the property is rented out to guests.
Comment: Initio really seems to understand holiday home cover, in fact Initio is the only insurance provider we found that willingly wants to cover holiday homes that are also rented out.

Wrap-up

Insurer AMI AMI (commercial) Tower AA State Initio
Any cover at all when paying guests in property? - - - -
Cover for guest risks eg. loss of rent, deliberate damage -
Cover as a holiday home for personal and family use
Annual Premium (inc GST) $1,205.51 $3,364.95 $1,274.98 $1,717.53 $1,723.01; $1,284.31

✔ Cover provided
- Cover possible
✖ No coverage

The problem with standard insurance

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:

  • Claim declinature: Many insurers will not provide cover for dwellings rented out on a short term basis.  If your insurer becomes aware that your dwelling is being let for short term rental they could outright decline your claim on the basis of ‘material non-disclosure’.  This means your policy will be void and that no claims will be paid, even if you have a rental insurance policy. 
  • Theft or damage by tenants: In the event that a tenant steals from you, or causes damage of a minor or major nature you could be out of pocket without the right insurance cover. Total loss in a house fire or having your holiday home converted to a P-lab is probably the worst case scenario here.
  • Landlords furnishings and chattels: Curtains, floor coverings, appliances and furniture are not considered to be a part of your dwelling. Without the right insurance policy you will not be covered for these valuable items, as the policy will only cover the physical dwelling and not what’s inside.   
  • Cover during periods of un-occupancy:  If your property is unoccupied for more than 60 days it is likely that your policy will cease to provide cover.  When it comes to short term rental properties this can be a major issue.  If your house was to suffer a major loss on the 61st day the insurer could decline your claim under their occupancy condition.  It is crucial that you select the right insurance policy that will continue to provide cover during all periods of unoccupancy.
  • Loss of rents: After a major loss it will be likely that your dwelling cannot be tenanted.  This in itself creates a major financial exposure, especially if you are leveraged-up and dependent on rental income for ongoing obligations such as rates and loan repayments.  Without the right insurance policy you will not be covered for the lost rental income from confirmed and potential bookings.
  • Landlords liability: Landlords and property owners owe a duty of care to their tenants. As a landlord you could be held personally responsible for damage to your tenant’s property or worse still for personal injury to your tenant.  Without the right insurance policy you may be forced to bear the significant cost of any damages and legal fees yourself.

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.

Our recommendations

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. 

Bookabach has put together an insurance product in collaboration with Inito Insurance. Click here to find out more about this (and get an online quotation).


DISCLAIMER:  The information contained in this article was compiled in April 2018.  The information contained in this article is generalised insurance advice only using an example property, it does not constitute specific financial advice.  Every property is different, and your property or circumstances may require specific financial advice.  We take no responsibility for content of this article or the interpretation of the various insurer wordings. 

 

 

 

 

 

 

 


 

Gaps in your insurance are best dealt with now, before a loss occurs, otherwise you could find yourself without the cover you expected.

Specialised holiday home cover

Bookabach has teamed up with Initio 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 $1,284.31 (incl. GST, and govt levies) with an excess of $400.

Find out more

Piwa perched