Owning a rental property comes with risks that standard home insurance does not cover. Landlord insurance is specifically designed for property investors and provides protection against tenant-related risks, lost rental income, and property damage that would otherwise come out of your pocket. Understanding what is covered, what is not, and how much to budget for premiums is essential for any serious property investor.
What Is Landlord Insurance?
Landlord insurance is a specialised policy for rental property owners that combines elements of home insurance (building and contents cover) with landlord-specific protections like loss of rent, tenant damage, and landlord liability. While not legally required in New Zealand, landlord insurance is strongly recommended for anyone renting out property because the potential costs of uninsured events can quickly exceed the cost of premiums. Vacant properties, tenant damage, and legal disputes can cost tens of thousands of dollars, making insurance a sensible investment.
What Does Landlord Insurance Cover?
1. Property Damage
Landlord insurance provides protection against damage to the building from events like fire, lightning, explosion, storms, floods, natural disasters, theft, vandalism, burst pipes and water damage. Earthquake damage often requires separate or additional cover depending on your insurer and location. This coverage is similar to standard home insurance but tailored specifically for rental properties, with the understanding that you may not be present to notice problems early.
2. Tenant-Caused Damage
This is where landlord insurance differs significantly from home insurance, and it is one of the main reasons investors take out these policies. Most policies cover deliberate damage by tenants (typically up to $20,000 to $30,000 per event depending on the insurer), accidental damage caused by tenants or their guests, and damage during abandonment if tenants leave without notice. Note that there is usually an additional excess for tenant damage claims (often $500 or more), and normal wear and tear is never covered under any policy.
3. Loss of Rent
If your property becomes uninhabitable due to an insured event, landlord insurance covers lost rental income while repairs are completed. Coverage after insured damage typically provides up to 12 months of rent or up to $40,000. Some policies also cover 8 to 12 weeks of rent if tenants default on payments, and some provide cover during Tenancy Tribunal legal proceedings.
| Insurer | Loss of Rent (Insured Damage) | Loss of Rent (Tenant Default) |
|---|---|---|
| Tower | 8 months | Up to 8 months |
| AA Insurance | 12 months or $20,000 | Varies by policy |
| State | Up to 12 months | Subject to policy terms |
| AMI | Up to 12 months | Check policy details |
| Vero | Up to 12 months or $40,000 | Up to 12 weeks |
4. Landlord Liability
If someone is injured on your rental property and you are found legally liable, landlord insurance covers your legal defence costs, compensation payments, and court costs or settlements. This is critical protection against potentially unlimited liability claims, which could otherwise put your entire investment portfolio at risk. A single serious injury claim could cost hundreds of thousands of dollars without this protection.
5. Landlord Contents
If you provide furniture or appliances in your rental, landlord insurance can cover these items. This includes whiteware such as fridges, washing machines, dryers and dishwashers, as well as window coverings like curtains and blinds, carpets and floor coverings, and furniture in furnished rentals. Cover amounts vary between insurers, with Tower offering up to $20,000 for landlord contents as an example.
6. Methamphetamine Contamination
Some policies now include cover for meth contamination, including testing costs and decontamination if levels exceed safe thresholds. This is typically covered up to $30,000 per event, though conditions apply. Given that meth remediation can cost anywhere from $15,000 to over $50,000, this cover is increasingly valuable for landlords in New Zealand. Check your policy details carefully as not all policies include this cover and conditions vary significantly.
What Is NOT Covered?
Understanding exclusions is as important as understanding inclusions, and several common situations fall outside landlord insurance coverage. Normal wear and tear is never covered, nor are pre-existing damage issues that were present before the policy started. Damage resulting from landlord neglect or poor maintenance is excluded, as is pet damage in most policies. Gradual damage such as slow leaks or rot that develops over time is also excluded. Finally, cover may lapse if the property is vacant for extended periods, typically 60 to 90 days, so you need to notify your insurer if a property will be untenanted for an extended period.
How Much Does Landlord Insurance Cost?
Premiums vary based on several factors including property value (higher rebuild value means higher premiums), location (high-risk areas like Wellington cost more due to earthquake concerns), property type (apartments versus standalone houses), claim history, level of cover chosen, and the excess amount you select. As a general guide, a basic landlord policy costs $800 to $1,500 per year, while a comprehensive policy with all add-ons runs $1,500 to $2,500 per year. Wellington properties are often 30 to 50 percent higher due to earthquake risk. Budget 4 to 8 weeks of rent annually for comprehensive landlord insurance.
| Factor | Impact on Premium |
|---|---|
| Property value | Higher rebuild value = higher premium |
| Location | High-risk areas (Wellington earthquake zone) cost more |
| Property type | Apartments vs standalone houses |
| Tenant history | Some insurers consider claim history |
| Cover level | Higher sums insured = higher premium |
| Excess chosen | Higher excess = lower premium |
Regional Challenges: Wellington
As of late 2024, obtaining landlord insurance in Wellington, Lower Hutt, and surrounding areas has become significantly more difficult. Many insurers are limiting new policies or declining cover entirely due to higher earthquake risk, land instability concerns, and recent insurance claim experience in the region. If you own or are considering purchasing investment property in Wellington, factor insurance availability and cost into your due diligence carefully. Some brokers specialise in hard-to-place property insurance and may be able to find options that direct approaches to insurers cannot.
Understanding EQC Cover
All residential properties with fire insurance automatically have EQCover through the Earthquake Commission. EQC covers natural disaster damage (earthquakes, volcanic eruptions, hydrothermal activity, tsunamis, and natural landslips) up to $300,000 plus GST for the dwelling. Your landlord insurance provides "top-up" cover above the EQC cap.
Key points about EQC for landlords:
- •The $300,000 cap applies per dwelling. A property with two separate dwellings has two caps
- •Land damage is covered separately up to the land value
- •Contents are not covered by EQC for landlords (only owner-occupiers get contents EQC cover)
- •Your excess is set by EQC (currently $2,550 for dwellings)
- •Private insurer excess applies separately for damage above the EQC cap
In earthquake-prone regions like Wellington, the relationship between EQC and private insurance matters significantly. If your property suffers $400,000 in earthquake damage, EQC covers the first $300,000 and your landlord insurance covers the remaining $100,000 (less your private excess). This is why adequate landlord insurance is essential even with EQC cover.
Landlord Insurance vs Home Insurance vs Contents Insurance
It is important to understand the difference between types of property insurance. Home insurance covers buildings only and is designed for owner-occupiers. Contents insurance covers personal belongings and is used by both owner-occupiers and tenants for their own possessions. Landlord insurance covers buildings plus landlord-specific risks and is designed specifically for property investors. Your tenants should have their own contents insurance for their belongings, and this is not your responsibility as landlord.
| Cover Type | What It Covers | For Whom |
|---|---|---|
| Home insurance | Building only | Owner-occupiers |
| Contents insurance | Personal belongings | Owner-occupiers and tenants |
| Landlord insurance | Building + landlord-specific risks | Property investors |
| Tenant contents | Tenant personal belongings | Tenants |
Legal Requirements
Tenancy Agreement Disclosure
Under NZ tenancy law, landlords must include insurance details in the tenancy agreement. You are required to state whether the property is insured, the excess amount that would apply to any claim, and you must notify tenants if these details change during the tenancy. Failing to disclose insurance information can result in Tenancy Tribunal penalties, so make sure your agreements are up to date.
What Tenants Are Liable For
Tenants are generally liable for damage they cause carelessly through negligence, deliberate damage, and damage caused by their guests. However, if the damage is less than your insurance excess, the tenant may be directly responsible for the full cost. If the damage exceeds the excess, you would typically claim on insurance and recover the excess from the tenant via the bond or through the Tenancy Tribunal.
Choosing the Right Policy
When selecting landlord insurance, start by assessing your property carefully. Consider the property value and rebuild cost, the location and specific risks such as flood zones or earthquake risk, whether you provide furniture or appliances, and the type of tenants you typically have. Then compare policies by looking at the sum insured for building and contents, loss of rent limits and conditions, tenant damage cover and limits, excess amounts for both standard and tenant damage claims, methamphetamine cover, and legal expenses cover.
You should also consider add-on options such as landlord protection insurance for legal costs in disputes, additional rental income cover, glass breakage, and natural disaster top-up. Finally, consider using an insurance broker who can access multiple insurers and find appropriate cover, especially for properties that are harder to insure. Their fee is typically built into the premium so there is no additional cost to you.
Making a Claim
If you need to claim on your landlord insurance, start by documenting everything with photos, videos, and written descriptions before any clean-up or repairs. Notify police if relevant for theft, vandalism, or suspected tenant damage as you may need a police report for your claim. Contact your insurer promptly as most policies require notification within a certain timeframe. Keep all receipts for emergency repairs and temporary accommodation costs. For tenant-related claims, complete bond claims correctly and follow Tenancy Services processes for any disputes.
Essential Protection for Property Investors
Landlord insurance is essential protection for property investors that covers risks standard home insurance does not, particularly tenant damage and loss of rental income. Budget 4 to 8 weeks of rent annually for comprehensive cover, and factor insurance costs into your investment calculations from the start.
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