There has been a change in the way your property insurance is calculated, previously from an unspecified replacement cost, to the new maximum specified amount known as the ‘Total Sum Insured’. We encourage you to ensure that the ‘Total Sum Insured’ amount reflects the true estimated cost of rebuilding/replacing your rental property in its entirety.
A shift to ‘sum insured’ rather than current full replacement or reinstatement will require property owners to be proactive to ensure any building and improvements are adequately covered. Possibly a need to provide insurance certificates (or similar certification) to identify clearly the sum insured.
A valuers’ insurance certificate provides a number of insurance estimates:
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Reinstatement
Defined as the cost of replacing or reinstating the asset with its equivalent in new condition, including, where appropriate, the use of current equivalent technology, material and services. In addition, an estimate of an inflationary provision is given being the expected inflationary growth in those costs for the insurance period.
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Indemnity Value
This can be defined typically either as the depreciated value of the asset or alternatively the estimated market value of the second-hand asset (excluding land). The figures may vary, and which is adopted could depend on the wording of the insurance policy. This area is somewhat grey.
The changes to insurance policies have important ramifications for homeowners. Owners will need to accurately value their asset to provide sufficient cover in the event of a total loss. The sum insured will be fixed for a precise amount. This gives some certainty to the insured, but it is imperative there is adequate cover. This is best done by a Valuer with appropriate experience
The big danger to homeowners is making sure their fixed sum of cover is sufficient to adequately replace the asset. This is where a valuers’ input should be used. It is also very important this fixed sum is updated regularly (typically every two years) to ensure the asset is covered.
A second insurance issue for Owners to consider, is insurance cover for methamphetamine or what is now referred to as chemical contamination cover. Does your policy cover chemical contamination whether the contamination occurs through smoking or manufacturing (cooking) the drug? It needs to cover both smoking and manufacturing methamphetamine.
An additional cover that is offered by most insurance companies is a Landlord Extension or Loss of Rent policy. If you do not have this insurance cover please be aware that it takes, in our experience, a minimum of three (3) months to establish a claim, decontaminate, repair and remediate a property ready for reletting. This does not include the time required to find a tenant. The time is taken up in the insurance scoping, decontamination and remediation processes.
