Insurance FAQs for uncertain times
Friday 1 May 2020
COVID-19 is set to be with us for many months ahead, so the Insurance Council of New Zealand has answered some commonly asked questions for landlords…
What are my insurance related responsibilities as a landlord in a COVID-19 environment?
A landlord policy is similar to a home policy in many ways but has been designed to also reduce the financial impact of loss or damage arising from additional risks that renting out your house brings.
Some options included under landlord policies are things like:
• Intentional malicious damage by the tenant
• Tenants using or manufacturing methamphetamine leading to contamination of your home
• Loss of rent when your tenants need to move out due to damages you need to claim on, or if your tenant abandons the property, or if you need to evict your tenant.
Different insurance companies have different policies, with different limits they will pay and conditions you must meet.
Some companies will sell a “landlord policy” and some will have a home policy with optional extras or extensions that are often tailored to your needs.
Not all landlord policies automatically come with the covers mentioned above, and we recommend you discuss your policy needs with your insurer.
Your key responsibilities have not changed. You must still, as far as is, practicable and safe:
• Take care in selecting tenants (satisfactory references for example)
• Collect rent in advance
• Collect bond (at least two weeks and register it with the government’s Tenancy Services)
• Monitor rent in arrears
• Inspect your rental property
What are my responsibilities in a COVID-19 environment for monitoring rent in arrears?
Policies will normally have requirements for you to notify tenants in writing when the rent is seven days in arrears, personally deliver a second letter to the tenants when the rent is 14 days in arrears (called a ‘14-Day Notice to Remedy’), determine if the tenants are still occupying the property, and apply to the Tenancy Tribunal for a termination order when the rent is 21 days in arrears.
From 26 March 2020 the Government has made a temporary change to the law to limit tenancy terminations. The changes give increased protection for tenants having their tenancies terminated during the lockdown. These new measures will apply for at least three months (26 March to 26 June).
For those next three months, landlords can’t apply to the Tenancy Tribunal to end the tenancy for rent arrears unless the tenant is at least 60 days behind in rent. This is increased from the normal 21 days.
The Tribunal will consider whether it would be fair in the circumstances to terminate the tenancy, taking into account whether the tenant made reasonable efforts to pay rent.
Tenants are still liable for rent and you can ask tenants to pay what is due. You can also seek a monetary order from the Tribunal for rent arrears even though you can’t currently ask the Tribunal to terminate the tenancy if the rent is less than 60 days in arrears. Landlords should try to reach an agreement with their tenants before taking this step.
In a COVID-19 environment the safest way to deliver notice to your tenants is email or by posting in the mail.
In summary, your obligations under your insurance policy have not changed. You should still:
• Ensure you are monitoring rent
• Provide a notice by reminding your tenants when they are overdue – (however, a Notice to Remedy (normally issued at 14 days) can’t be issued until 45 days because of the current restrictions that apply from 26 March to 26 June)
• Apply to the Tenancy Tribunal for a termination order (now 60 days not 21 days at present).
If your tenant is finally evicted or abandons the property in the meantime and you have suffered a shortfall in rent, then if you have cover for eviction or vacation under your policy, you are likely to be covered for this shortfall.
As always, if you are unsure, you should check with your insurer.
If my tenant says they can’t afford to pay their rent as they’ve lost their job, will my insurance pay?
No. Insurance cover may be available if your tenant abandons the property without notice or if you have evicted the tenant due to non-payment of rent, but not if the tenant remains living in the home.
My tenant vacated the rental property suddenly – does my policy cover me for loss of rent?
If your policy provides cover for tenants vacating without notice, then you will be covered for the unpaid weekly rent up to a set number of weeks. The number of weeks will vary between policies so check your own policy.
How do I inspect my rental property in a COVID-19 environment?
While government orders are that people should stay home and work from home, rental inspections should not be undertaken.
Regardless of the alert level we are at, insurers are still providing cover on the basis that inspections that were due to be undertaken during the period of restrictive travel will resume as soon as it is safe and practicable to do so.
Some property managers are completing virtual inspections.
If you are unsure about the requirements under your policy, we recommend you contact your insurer or insurance advisor.
As we move down the alert levels, we recommend you contact your tenant to confirm whether they are self-isolating or are ill. If they are, then the inspection should wait until after the tenant has been cleared by a health professional.
Why are some new landlord policies not providing cover at the moment for a tenant’s failure to pay rent?
If you already have a landlord policy, then there will be no changes to your cover.
If you don’t have a landlord policy, you will still be able to get cover with many benefits but some benefits such as loss of rent cover may not be offered. If you are thinking of taking out cover, shop around and compare policy benefits.
Some companies may not in a COVID-19 environment offer to provide loss of rent or rent default cover to customers who don’t already have it, and some companies may allow customers to select the cover now but will not accept claims for loss of rent where the cause is related in any way to COVID-19 financial hardship, as this is no longer a sudden and unforeseen event.
One of the principles of insurance is that a loss must be from a sudden and unforeseen event. In a situation where insurers predict, or it is common knowledge, that there is an expected exposure (rather than unexpected) it is unlikely cover will be provided.
A more extreme example to illustrate the same principle would be trying to take out insurance when part of your house was on fire. The risk is too high, and it is no longer unforeseen.
*These FAQs have been provided by the Insurance Council of New Zealand, more information can be found on their website here.
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