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Vacant properties – covered, not covered?

Vacant properties – covered, not covered?

24 Feb 2020 5 mins read

Your rental is sitting vacant. But you have insurance, so it’s all good right? Not necessarily… 

As a landlord, you might find your rental is empty for an extended period for one of two reasons. First, by design. For example, if you tap into the student market so it is only occupied in-term, you only lease out your holiday home during peak season, you are renovating or have some other reason to leave the premises empty. Secondly, it is vacant due to circumstance – perhaps finding a tenant is taking longer than expected, your tenants are away for an extended period during the lease (e.g. overseas or in hospital) or extensive repairs are needed. Either way, if your rental is vacant, you may find your insurance is no longer valid.

Just what is considered a vacant property?

Insurance providers consider an unoccupied or vacant property to be one that has not had anyone living in it for an extended period of time (some policies also have minimum furnishing requirements to deem the property habitable). 

The maximum amount of time a property can be left unoccupied and still receive full coverage varies from insurer to insurer so check the Product Disclosure Statement (PDS). Once the property has been empty for the specified period, most policies cease to apply. At EBM RentCover, it is 90 consecutive days, however, if you just notify us of the change in the rental, we can simply continue cover with an increased excess. 

Vacant property = no insurance cover?

A lot of policyholders don’t realise that when they take out cover for their rental or even their own home, the cover is based on the property being occupied – unless cover for a vacant premises has specifically been arranged. 

If the property is vacant for longer than the policy allows, it will be considered unoccupied, and one of two things could happen:

  1. The insurer may impose an additional excess on any claims that arise while the property is unoccupied or place restrictions on coverage.
  2. The policy may be cancelled.
What’s the problem with the rental being vacant?

Insurance is all about risk and vacancy increases risk. 

Risk: criminal element

When a property is unoccupied it’s a prime target for burglars, thieves and vandals – there is an increased risk it could be used as a ‘squat’ or clandestine drug lab, or suffer malicious damage. 

Take this claim as an example: The rental was vacant and was broken into. The windows, doors and interior were damaged. Remaining vacant, there was a second break-in. And then a third – this time squatters lit a fire. To compound the matter, a storm also passed through causing even more damage to the walls and flooring. At the end of the day, more than $30,000 in damage was sustained due to the house being unoccupied.

Risk: preventable damage

Events that may only cause minimal damage if the property is occupied, i.e. someone is there to look after it, can cause much more serious damage if there’s no-one at home. That was the case with this claim: The property was vacant and a water pipe burst in the bathroom vanity. The damage wasn’t discovered until a neighbour noticed water coming out of the property and called the owner. Most of the home had been inundated with water and the floors, skirting boards, doors and vanities all had to be replaced – at a cost of $54,500.

It is also often the case that, when there is no occupant, the landlord and agent can’t get on-site quick enough to protect the property against fire, storm or other weather-related perils, or to protect the property from further damage, as most policies require.

How do insurance providers address the vacancy risks?

Landlord insurance policies – and their premiums – are generally based on a lower-risk scenario and assume the property is occupied. 

If your property is unoccupied, you need to get the insurance provider’s written agreement for full cover to continue. A vacant property can require either an endorsement or a separate policy, depending on the insurance company, and some will not insure vacant homes at all. 

For insurers that will take on the risk, coverage limits and premium costs for unoccupied and vacant homes vary, based on how long the home will be empty and the steps the owner takes to protect the property, such as installing smoke detectors and alarm systems. In most instances, if the insurer agrees to extend cover, the policy will only cover standard perils such as fire and wind, but not perils such as water damage due to burst pipes, glass breakage or vandalism. They may also impose additional exclusions and restrictions on the policy, for example, it may be a requirement to ensure the premises is kept in a ‘lived-in’ state or that it is inspected frequently. You’ll find that applicable excesses will usually increase when the premises are unoccupied too.

The takeaway?

You must notify your insurance provider if your rental is unoccupied for an extended period.
Your insurer will then determine if they will provide cover, under what terms and conditions, at what premium and for how long. 

If you neglect to tell your insurance provider that your rental is vacant, you could void the policy and leave yourself exposed to the costs if the property is damaged.

At EBM RentCover we aim to deliver certainty by being open, honest and transparent. We educate clients about the unknown and want to ensure you have the information you need to make informed decisions about landlord insurance. 

Main photo by Philipp Berndt on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions. 

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