In the mix of excitement, stress and financial costs involved in moving into a new flat, there’s seldom room for thoughts of insurance plans and pondering things like ‘risk mitigation’. Usually the last thing you want is more paperwork and committing to shell out more money.
Like most young renters, I hadn’t thought much about insurance – and vaguely relegated it to the dwindling pile of things that my parents might still be taking care of. But after my house was burgled and I read of some recent cases where things went really bad for young renters like me, it was time to take a closer look at why we weren’t taking up insurance, and what risks we take on as tenants.
In a recent Massey University study, 70 per cent of respondents saw value in having insurance. Despite this, only 20 per cent of the 18- to 22-year-olds surveyed, and 29 per cent of the students, had any type of contents insurance. Dr Claire Matthews, Massey University's Director of Financial Planning, says cost, lack of information, or misunderstandings about coverage under their parents’ insurance are the main reasons young people don’t have insurance policies of their own.
Dr Claire Matthews explains more about the study on Nine to Noon.
The Insurance Council New Zealand CEO Tim Grafton is unsurprised by Massey University’s findings. He believes the lack of insurance coverage among young people is largely due to a lack of information. “People don’t realise what they may be liable for if they are occupying somebody else’s property and by and large a lot of young people will be in rental situations.”
They focus on their own contents, look at the value of those contents and think it’s not worth much, it’s not worth bothering about. But it’s a bigger picture
As soon as your name is on the lease of a rental property, you are liable for any damage to the property by ‘invited guests’, which includes your friends, family, party guests (or those of your flatmates), and even builders and door-to-door salesmen. Basically, it covers anyone who is legally allowed on the property.
Damage to the property can lead to renters being left with bills of hundreds of thousands of dollars. “They focus on their own contents, look at the value of those contents and think it’s not worth much, it’s not worth bothering about. But it’s a bigger picture,” says Tim Grafton. So while the value of your own contents are important to consider, the bigger risk you take on is the potential for damage to be done to the property itself.
Recently, a group of Auckland students accidentally flooded eight floors of their apartment building when a coathanger was left on a fire sprinkler, causing $26,000 worth of damage. As one of the tenants had public liability insurance, they were able to cover the bill for all of the tenants. But in 1999, a group of Otago University students were charged for equal blame for the $150,000 worth of damages done to a property when one of the tenants accidentally caused a fire. Even though four of the tenants were nowhere near the property at the time, all five were pursued for damages as all were listed as tenants on the lease. None of them had any type of contents insurance.
People aren’t aware of the risks and there aren’t enough measures to prevent people having to pay out those phenomenal bills when disaster does strike
Public liability insurance comes with almost all contents insurance plans and covers for damages done to a property. Most contents plans will cover you for loss, damage or theft of your property and the amount of cover depends on the total value of the goods that you own.
NZUSA president Daniel Haines believes a lack of awareness is the reason lots of students and young renters don’t have insurance. “People aren’t aware of the risks,” he says, “and there aren’t enough measures to prevent people having to pay out those phenomenal bills when disaster does strike.”
But ultimately cost is the biggest factor. “After food and travel and rent, there’s nothing left and I don’t think insurance is something they see as a priority.” Despite it being compulsory for international students, it’s seen as more of a “luxury item” for domestic students, says Haines.
Most insurance plans also require a minimum cover of $10,000 worth of personal property, which for some people might seem more than they need. (But think how much it would cost to replace everything you own.) There are currently no schemes that allow public liability insurance by itself, meaning you may have to pay for cover for more personal goods than you have.
There’s also a degree of confusion around whether or not students or young renters are covered by their parents’ insurance. This is only the case if your parents have comprehensive cover, and it only covers you while you are living at a hall of residence-type accommodation. As soon as you move into a privately-rented property you are no longer covered under their insurance plan.
But the low uptake could also be because many of the types of insurance available are ill-equipped to meet the ‘atypical’ situation of young renters. There are currently no options available that allow a group of tenants who aren’t in a relationship or family to apply for collective cover, meaning each occupant needs to apply and be assessed separately.
Daniel Haines came up against this when he was looking to get insurance along with his flatmates in a five-bedroom property and was unable to get a scheme to collectively cover them. “Once you get more than four people in a flat who aren’t in a relationship or family, they seem to disallow any kind of scheme to cover all of you.” He questions why groups of renters are treated so differently to families, especially when a group has been renting together for several years. “When you’ve been living with those people for a long time, they become your family.”
There is also the perception that as a young renter you're seen as being higher risk. However, the Insurance Council's Tim Grafton says that this is not the case for contents insurance. "For car insurance, the claims rate for young males is much higher,” he says, “which equals higher premiums for this demographic”. But he says the main criteria for contents premiums are the type of security on the property and the age of the house you’re occupying. If you accurately inform the insurer about locks on doors or burglar alarms, premiums can be reduced. Despite this, Grafton agrees more could be done to meet the demands of the younger market – but it's a work in progress.
Know your risks: If you’re named on a tenancy agreement you’re liable for any damage done to the property by yourself, your flatmates and any invited guests. Assess the value of the property as well as your personal belongings, and consider your ability to recover financially in the worst case scenario.
Types of cover: Contents insurance covers theft or damage to your own personal property. Public liability covers damage to the property you are renting. Most contents insurance policies come with personal liability cover of up to $1 million.
Talk to your landlord: Check with your landlord to see what their existing insurance policy is. Even if your landlord has insurance on the property, it’s unlikely to protect your contents and liability for damage to the landlord’s property.
Shop around: Get a couple of quotes from insurances agencies to make sure you’re getting the best value and most comprehensive cover.