Think you have good insurance? Read This

Benny wrote:

Hi all, As I don’t know/use QBE, others will need to answer this…
What I wondered is if perhaps cheaper offerings are cheaper for a reason? e.g. a Bank can offer a Basic Loan, or a Standard Loan. The Basic one is cheaper, but it offers far less options – it really is Basic, but enough for many people in most situations.
And then, playing Devil’s Advocate, $20k of cover for “malicious damage” would probably cover 90% of all malicious damage claims – only the extreme 10% (as with 5c1) that would be left wanting. Anyway it will be good to read more once things are resolved, 5c1.
This is such an important subject, and one that we all can do with knowing extra about. Thanks for starting it – let’s see where it ends…. (hopefully with some good news for you, and thus for others reading later).
Benny

Having been involved with landlord insurance for over 25 years the simple answer is yes, cheap insurance is generally cheap for a reason. Obviously there are always price considerations but they should be more about deciding which risks you are happy to accept yourself as opposed to transferring the risk to someone else (via insurance). Unfortunately, many people will simply search for the cheapest price, and then complain when something wasn’t covered. On the surface many policies look very much the same, as the simple things are just that, simple. It is the more industry specific details that need to be included, things such as tenant hardship, death of a tenant, whether covered under periodic tenancies, whether covered for Accidental Damage (probably the biggest issue) and so forth.

To be honest I’ve been writing on this subject for so long now, yet I am still stunned at how many people just go looking for a cheap price. The reality is, saving a little on insurance today may be the worst decision you ever make.

Benny wrote:

Hi B Clarke, Thanks for your comments

I have written numerous times on this subject, malicious damage is a very specific term. So in my opinion you may have been lucky to even get the $10,000. What this does though is to highlight once again the need to be really careful about what’s included in policies.

That is scary – to think that if not deemed malicious damage, there may have been NO payout? (ref. “lucky to get $10k”).
Surely, since very few properties are rented to grow cannabis, there would only be a small premium to cover such an event surely. But if we had to physically list each/every possibility re damage (meteorite hit, neighbour’s property subsiding and having their house fall and break ours, car/truck/bus crash through our house, etc.) like there must be a thousand ways that a house could be damaged.
I struggle to think of all of the things that MIGHT happen that might need to be quantified (and charged for) to get FULL insurance. Even if I spent a month, I doubt that I would be able to think of EVERY eventuality that could break a house.
Doesn’t ANYONE just “cover the lot”?
Benny

First things first. There is no such thing as just “covering the lot”. As you say, you could never list every individual event and neither could any Insurer just “cover everything”, it’s far too open and could never be priced. Certainly no-one could ever afford “cover the lot” insurance. The best example of difficulties with insurance in this regard is cyber insurance (I know this is off track). Cyber Risk and subsequently Cyber Risk insurance is so new, that the Insurer’s are battling to keep up. Every time they add a type of risk in, a new risk emerges. Similar to trying to keep up to date antivirus protection, you can update today and it is out of date tomorrow because someone found a new threat to release.

Now, back on the subject. With insurance you don’t have to list every possible event, it’s done more with types of risks (such as fire, storm etc.) and then with certain exclusions where the Insurer limits that risk. Somewhere something needs to pretty much be either covered or excluded. So for example a general household policy may say it will cover malicious damage unless you (the owner) caused it, meaning it will only cover malicious damage by other parties (it’s not as simple as that but just to make the point).

Covering something like setting up a cannabis growing system would not need to be included specifically, it would most likely fall under either deliberate and intentional damage (if included) or for us the more encompassing Accidental Damage (which in our world accounts for some 60-70% of damage claims). In the same definition there could be anything from red wine spilt on the carpet, right through to a full blown drug lab which can easily cost in the tens of thousands of dollars (and we’ve paid claims in these figures).

Just for your interest this is a link to a fairly simple page I have don eon the Malicious Damage vs Accidental Damage subject. It’s the biggest area (in my opinion) that landlords get caught out when looking to save money on insurance.

Bottom line becomes, looking for insurance that is value, not necessarily cheap. You have to make sure you are covered for the risks you want to be covered for and accept that there are risks you are happy to pay for yourself if they occur.

If you don’t mind paying out $50,000 to repair the damage and associated clean up from a drug lab, then don’t worry about making sure it’s covered. Personally, I don’t want ugly surprises when I go to claim.

Benny wrote:

Hi BClarke,
This is useful from you, but it leads me to more questions (sorry):-

There are key points to this that in my opinion are non-negotiable items when it comes to landlord insurance, these include inclusion of Accidental Damage rather than just Malicious Damage, no excess on loss of rent claims (huge impact on claimable amounts), and a number of other features.

From what I am reading of 5c1’s case, just the fact that a Company “covers” Accidental Damage is not enough. Like for Malicious Damage, it could be that Accidental Damage has a limitation on it somewhere in the back of a PDS too. Could this be so??
Why can’t Insurance Companies be directed BY LAW to state their exclusions up-front and out in the open (a bit like Banks and that “Comparative Rate” that puts the lie to their screamingly LOW Interest Rate). Isn’t there something called “Truth in Advertising” that would direct these Companies to be up-front with their exclusions?
Benny

It’s certainly possible, insurance policies often have sub limits on specific sections of the policy. I can only speak conclusively for our RentCover products where there is certainly no sub limit on either malicious or accidental damage, they are both up to $50,000.

Going back 25 years there were two landlord insurance policies on the market, today I expect I could find anything up to 100. Most unfortunately are major insurers who have essentially tweaked an existing household policy and called it a landlords policy. There are only a handful that I would rate as being true landlord policies that have been designed in consultation with the property management industry.

Unfortunately, the creation of many of these policies has largely come about through people’s needs to simply find a cheap price, so major insurers gloss it up and make it cheap and simple to get, but many only find the shortcomings when they go to make a claim.

Insurance is complicated and to be fair Insurers do go to a fair bit of effort to make it clear, but it’s nowhere near as simple as advertising a “comparative rate”.

Quite simply they can’t put everything up front, an insurance policy is far too complicated and requires a lot of explaining. I actually don’t think it’s fair to say that is hidden at the back or something. You are entering into a contract for a substantial amount of money (cover), and every section of that contract is important, so yes you do need to read it. In reference to the QBE PDS that was mentioned in this post, I had a quick look at the one I’m assuming it is, and it may be on a late page but in fairness it is a limit on an optional section of the policy. It is laid out fairly clearly, but I appreciate that a PDS is a complicated document to read, as however is any contract. It’s also important to remember that when you apply for insurance, you are agreeing that you have read and understood the PDS.

• This reply was modified 8 years, 2 months ago by  bclarke.

Thank you Brett Clarke for providing us for your very informative article:-
https://www.propertyinvesting.com/the-12-most-common-pitfalls-when-insuring-your-rental-property/

This whole thread has been an eye-opener to me, and I suspect to most other members too. Now having your article that highlights all of those “gotchas” is worth its weight in gold – and so are you !! ;)

If any members find their own Insurance Company policies wanting, do share the experience here.

As you can see, this whole subject is huge, and is such a minefield – mainly because, as Brett says earlier in the thread, “As mentioned in previous post, there is no such thing as a ‘cover the lot’ insurance. If anyone tried to do it no-one would ever be able to afford it.” This means, since we can’t cover ALL risk, we must choose our armour wisely.

Certainly Brett, along with the thread originator (5c1eb9d2), have run the flag up the pole – now it is up to each of us to salute it, or remain in some danger in this area!!

Many thanks to you two for such a massive “heads-up”.

Benny