In order to give an accurate quote, a broker will need to have certain information about the property.

Happily, with new-builds, all this information is usually supplied in the property pack.

A broker needs to know:

• The address of the property
• If the buyer is getting a mortgage
• How the property is owned (Own name, joint name, trust or LTC)
• Is the home stand-alone or attached
• If the house is attached, how many properties there are in total

Every single one of these components will affect the cost of your premiums.

This is why the process of investigating insurance is important during due diligence because if your insurance premiums are sky-high, you want to know that before the contract goes unconditional.

What type of insurance do I need?

Here at Opes Partners we usually recommended that property investors get the following insurances (but they’re not all necessary all of the time):

• House insurance
• Landlords insurance
• Contents insurance

House insurance covers you if your house burns down, is struck by an earthquake, or another natural disaster.

Landlord protection covers and includes:

• The chattels of the house if they get damaged (heat pump, oven, carpet, drapes)
• Loss of rent if there’s a flood or fire and your tenant has to move out
• Meth contamination
• Rent if you have to evict your tenant or they leave without notice
• Tenancy tribunal issues
• If your tenant maliciously damages your property

Finally, there is contents insurance. This is used to cover the damage of any extras you put into the house. Whether you need contents insurance or not depends on a few things.

If an investor is renting out their property unfurnished to long-term tenants, then landlord insurance will likely cover house chattels. So contents insurance wouldn’t be needed.

But if they fully furnish the home with beds, couches and TVs, then contents insurance will be needed as furnishings are deemed extras.

This becomes more complicated if the investor chooses to use the property as an Airbnb because this requires commercial insurance as, essentially, it is turning the property into a motel.

Commercial insurance is a lot more complex and expensive, so we won’t cover it too much in this article.

Does every investor really need all of these types of insurance?

Well, “yes” and “no”.

Some are mandatory, such as house insurance if you’re getting a mortgage. The bank won’t give you the money if you don’t insure it. But landlords insurance, while recommended, is optional.

However, should you choose to forgo this, you are essentially “self-insuring”, which means if something goes wrong you have to pay the cost yourself. In the worst case, this could cost you tens of thousands of dollars.

Many property investors choose to buy landlords insurance for peace of mind. While others who are more risk-seeking are willing to go without and pay the cost if things turn out poorly.

What happens when insurance is organised through a residents’ association or a body corporate?

Properties in a development of 5 or more will have one insurance policy assigned to the group as a whole and there is no wiggle room to change it. That means that both you and your neighbour will use the same insurance company.

Simon says there is a reasonable amount of confusion about this, with investors thinking because they are buying a unit title they can choose the insurer, when in reality they can’t.

But this one-for-all policy is for a good reason.

Say for instance there are 50 properties, sharing a lot of the same services, and each had its own insurance with different policy wordings. Then let’s say there was damage caused to a shared driveway. With too many insurance companies involved, claim time is going to be too problematic ... catastrophic even.

So, when there are 5 properties or less it’s manageable for each to have its own insurance. After that, it’s just one insurer for the lot.

This insurance will be run through a body corporate or residents’ association by divvying up the premiums and invoicing all home-owners in the development to pay their share, as per property size.

In this instance, how the policy is structured and who is going to administer that is a very important discussion to bring up with an insurance broker during due diligence.

Body corporates do have their upsides. For instance, the insurance will often be cheaper when organised through the body corporate as you’re able to get it at a discounted rate.

However, it is good advice for investors to revisit, or question, whether the body corporate premiums are too high, which is something an insurance broker can inform you on.

This way you can double-check policies are being reviewed correctly, and if you feel there are discrepancies you can raise this at the annual general meeting (AGM).

Do insurance companies really pay out?

Some investors are sceptical of insurance companies, thinking: “Isn’t there an incentive for the insurance company not to pay me out?”

Whether the insurance company pays your claim or not depends on your policy wording and quality of the policy.

Simon says it is very much a “get what you pay for” scenario, so don’t scrimp and save on the premiums.

For example, some budget policies don’t have meth cover and claims are rejected, leaving the investor to find $50,000 to cover the cost.

Some cheaper policies exclude malicious damage; some only have $10,000 cover for chattels, while others have $20,000.

Gradual damage is often a hot topic. For example, if there is a leak in the wall and the shower has to be removed some policies will cover up to $5000 in costs where others will only cover $2,500.

When you see an investor on Fair Go complaining the insurance company hasn’t paid out, generally the issue is that the investor thought they were covered under their policy but they weren’t.

So working with an insurance broker can help investors understand exactly what their policy does and doesn’t cover. That allows you to make an informed decision about how much risk you are willing to accept and how much insurance you really need.

How do investors tell the difference between policies of high and low quality?

Don’t assume because a policy is more expensive, it is of higher quality. The nuances can be assessed by online comparison tools and reference guides, which are utilised by brokers.

However, an experienced broker will know the track records of claim history and will have a unique insight into which insurance companies are usually better or worse than others when it comes to paying out.

Simon says he’s been through so many policy wordings he can tell the difference between good and bad quality. So, sometimes it is a case of getting someone who has “been there and done that”.

Even the biggest direct insurance company could have a good policy wording but still stuff it up and under-insure you.

Looking for more information about due diligence?

If you're looking to learn more about due diligence, check out these articles about: how to work with a solicitor during due diligence, how to work with an accountant during due diligence, how to get finance during due diligence, what to do on a site visit, and everything you need to know about signing a sales and purchase agreement in NZ.