'Up to four weeks' rent': Why contents insurance could be a good idea for renters

Flatmates in living room
An insurer has introduced limited contents insurance for budget-conscious Kiwis. Photo credit: Getty.

A New Zealand insurer is urging renters who would struggle to stump up four weeks' rent if they damage their rental to get basic contents insurance.

Under the Residential Tenancies Amendment Act, which took effect from August 27 2019, tenants who damage rental properties as a result of carelessness are required to pay for it.  

Steve Watson, national manager compliance and investigations at Tenancy Services said the changes encourage tenants to take care of rental properties. There is also now a limit on how much tenants have to pay for careless damage.

"If tenants damage a rental property as a result of careless behaviour, they'll be liable for the cost of the damage up to a maximum of four weeks' rent (market rent for income-related rents), or the landlord's insurance excess, whichever is lower," Watson said.

He said the Tenancy Tribunal makes decisions based on the facts of each case. If a property is damaged, the landlord has to prove it isn't fair wear and tear.

"Following this, the tenant must prove that the damage was careless (and not intentional)," Watson added.

If the damage isn't careless or intentional, tenants aren't liable. They also don't have to pay for responsible for repairs or damage caused by burglaries, natural events (such as storms, floods and earthquakes), or fair wear and tear.

AA insurance (AAI) general manager of strategy Aaron Dickinson said despite tenants being liable for careless damage, around 18 percent of Kiwis don't have contents insurance. The company has introduced a new, lower priced contents cover aimed at renters and students.

"For customers wanting to save on their premium, or for people buying contents for the first time (students, renters and younger customers), Limited Contents provide[s] a starting point to helping them protect their belongings," Dickinson said.

"For a 30-year-old person flatting in a central Auckland standalone home, with an unmonitored alarm, Limited Contents cover could be $313.85 per year. This is with a $300 excess. The cost for full contents cover could be $606.51."

Tenants found to be liable for careless damage would be required to pay their landlord first. They could then put in an insurance claim.

"If a customer with a Limited Contents policy is a tenant and is found liable for 'careless damage' to the property they're renting, they'll need to settle this directly with their landlord. They can then make a claim for reimbursement of this amount, less their excess," Dickinson explained.

AAI's limited contents policy also covers damage to personal items caused by burglary and natural events. But it doesn't cover accidental damage. 

"It doesn't cover accidental damage to general household items, such as your sofa if you spill wine on it, or if you drop your glasses on the concrete."

Tim Grafton, chief executive at the Insurance Council of New Zealand, said insurers offer different products at different prices and it's a matter of choosing the right one. Limited contents cover is one option - but won't suit everyone.

"People need to look at what their risks are and what the consequences would be if something bad happened and decide for themselves what they can look after and what they want to transfer to an insurance company," Grafton said.

People looking to cut insurance costs can increase their policy excess. They can also ask an insurance broker to compare options and prices.