EQC Insurance on Rentals

[minimoke]

Given the GFC and the ensuing recession I wonder how many landlords have been scrimping on their insurance in Christchurch.

Many of the houses in the eastern suburbs are rentals. Generally its not the flashiest area of town.

If I look at one of my ex-rentals in a destroyed part of town it was a three bedroom with a current CV of $230,000. Land is valued at $133,000 with improvements at $97,000.

Would this property have been insured for $230,000? If so by the time the cost of land remediation is taken into account there isn't going to be much left from EQC or the insurer to rebuild.

Which makes me think Christchurch is at risk of creating modern slum neighborhoods in under insured areas.

[POSSUM THE CAT]

MiniMoke surely you had it insured for replacement value (which is what any good insurance company would recommend annd then your insurer picks up where EQC leaves off

[minimoke]

My properties were insured with "actual replacement" which meant restoring the house to the condition equal to what it was when it was new. There was also "loss of Rent" cover which equated to around a years worth of rent.

But that was my insurance in a market with growing capital value and good rental demand and a good yield ie when the market was good.

I'm thinking of landlords who have had properties since the GFC and recession. Have they scrimped on their insurance? Have they just had an "Insured Sum" to save on premium and improve cash flow?

As an aside, and in hindsight, I'm not sure even "actual replacement" would be enough cover. Most of my place's did not have insulation or carpet when they were new - these were added later on. Some rentals are going to take 2-3 years to rebuild by the time the land remediation work is done - my one year loss of rent wouldn't have covered it.

[Serpie]

I lost 2 rentals in the recent quake, but thankfully have good insurance in place, including loss of rent insurance to cover just over 4 years of rental. But I'm still not sure what my options will be with regard to taking the insurance payout and exiting the investment. I'm sure it's not like writing off a car, where the insurance company swaps you a cheque for the wreck, and that's the end of the transaction.

Assuming they're both written off then the EQC payments will hopefully come through reasonably quickly and clear the mortgages, but then where does the insurance company top up go? Am I required to re-build, or can I take the money and run? And what happens to the land, and the redundant structures sitting on it, if I dont want to re-build?

I've taken a mortgage holiday for 6 months, and am waiting for the insurance company to come back to me regarding the loss of rent insurance, so not worrying about it at this stage. (As soon as the loss of rent insurance payments come through I'll onviously re-start the mortgage).

Any informed advice or opinions would be most welcome.

[Serpie]

Some rentals are going to take 2-3 years to rebuild by the time the land remediation work is done - my one year loss of rent wouldn't have covered it.

If your full replacement insurance, and your loss of rent insurance, were with the same provider, then it would be interesting to see how they would treat a delay in rebuilding. Surely if you had a policy that required your insurance company to rebuild your property, and it took them over a year, then you'd have a case to request that they compensate you for lost rent for this extended period?

It's not your responsibility to obtain the resources to rebuild in a timely manner - that's down to your insurers.

[percy]

If your full replacement insurance, and your loss of rent insurance, were with the same provider, then it would be interesting to see how they would treat a delay in rebuilding. Surely if you had a policy that required your insurance company to rebuild your property, and it tooko themover a year, then you'd have a case to request that they compensate you for lost rent for this extended period?

It's not your responsibility to obtain the resources to rebuild in a timely manner - that's down to your insurers.

Not trying to be funny.Make sure you get the best legal advice you can.If you do not have a great lawyer let me know as I know a cracker,recommended by Selena.

[minimoke]

I lost 2 rentals in the recent quake, but thankfully have good insurance in place, ....

Assuming they're both written off then the EQC payments will hopefully come through reasonably quickly and clear the mortgages, but then where does the insurance company top up go? Am I required to re-build, or can I take the money and run? And what happens to the land, and the redundant structures sitting on it, if I dont want to re-build?

Sorry to hear of your loss Serpie. Congratulations on being wise enough to have comprehensive insurance.

At a broad level I think you can expect EQC to pay out two cheques for $100,000. These cheques will go to your bank for your mortgage. If your mortgage on a property is less than $100,000 you'll get the difference.

The house part is probably relatively simple. Your insurance will likely pay to rebuild it to its original state using current materials. So you'll probably get single glazed timber framed windows replaced with a single glazed aluminium windows. Your insurance will also likely pay the demolition and removal of the old house. So say you have a 150sqm house, at a rebuild of $1,000 a sqm tyyour insurance company will pay $50,000 - teh othe $100,000 comig form EQC.

What I'm not clear about is how much the insurer will spend on land remediation. If you are in an area of liquefaction (where they are talking about building dams) council and governement will pay for that so your property gets some benefit. But what if you had 100 cubic metres of silt shoveled off your back yard (like some properties I know) thats a lot of potential problem lurking under the surface. I've no idea who will pay to get that fixed.

Either way your insurer does have the option of simply settling with you. They might figure its easier to offer you $50,000 cash (plus cash fo rthe loss of rent) in full settlement - or some other figure. If this happens you get the cash (and the $100,000 EQC money) and keep the land and property. This means you have to demolish and remove the property at your own cost (remember the "House of Horrors?) and you'll be responsible for the rates on the property until you sell it.

Clearly you're going to have to look closely at your Policy and get very good advice. I'd imagine the insurers are going to look closely at their exclusions. Remember after September how the insurance companies tried to claim the immediate after shocks as second events so that EQC would cough up two lots of $100,000.

Which leads me back to my original post. Are landlords underinsured - resulting in potential slum replacements. Or, as you have raised, will landlords take the money and run leaving decaying bomb sites for years to come.

[CJ]

So you'll probably get single glazed timber framed windows replaced with a single glazed aluminium windows. Your insurance will also likely pay the demolition and removal of the old house.

Dont building regs say you need double glazing down in ChCh. Likewise minimum insulation is lilkely to have increased. Do insurers take the burden of increased regulation in this situation.

[minimoke]

Dont building regs say you need double glazing down in ChCh. Likewise minimum insulation is lilkely to have increased. Do insurers take the burden of increased regulation in this situation.

As i recall its the overall R value that counts. So if you can get the overall insulation requirements through cheaper wall / ceiling / roof insulation you could get away with single glazing. When I last built I used ALF but in the end said "bugger it" and just put in double glazing. I expect insurers will go to the cheapest option that meets current regulations. Duncan MAcgregor might be able to give more expert opinion.

Edit: looks like single glazed wood or PVC framed windows with low emissivity glass is better (marginally) than double glazed aluminium framed.

[Serpie]

Thanks guys.

And my thoughts are with any here who are facing similar issues with their family homes (as opposed to investment properties). Our own home has lost most of it's cladding, but appears structurally sound, with only minor damage inside, so we can stay here comfortably after some temporary repairs to the outside.

Today's news says an estimated 10,000 homes to be demolished, so there's lots of families out there who will be anxious and frightened.