Home & Contents insurance “fine print” trips and traps (Part Two)
Posted on 18 May, 2018
In last month’s Part 1. Of our Home & contents insurance trips and traps series, we took aim at a few different types of cover, including accidental damage and holiday-home cover, and where to look for some standard industry trappings, laying out what some insurers may include in the fine print of a contract, and as well some areas where you may get tripped-up if you’re not diligently reading your insurance agreements.
This month, we take a look at the finer details of what insurance companies define as ‘Flood Cover’, terms and definitions to look out for and the variety of cover options for you to choose from. As well, we investigate the nature of home-business and home-sharing cover, and what It can mean for your personal liability and contents safety.
Traditionally, if Flood cover was not covered by a Home & Contents policy, it was the insurer’s legal obligation to clearly inform a policyholder of that fact – otherwise, cover was deemed to be effective.
As a majority of people are not exposed to a Flood risk it was unfair to charge everyone a levy to cover those who opted to build or buy a property in a flood-prone area, so Flood cover was not readily available from insurers.
However, with the regular traumatic flood damage to properties in far north Queensland the Federal government decided that Flood cover should be more accessible from insurers and urged insurers to provide the cover. However, without extensive mitigation of flood risk areas by local councils, it is impossible for insurers to provide cover at a reasonable cost in high exposure areas.
So instead of insurers providing automatic cover for Flood, we now have a mix of cover options for policyholders to be aware of as follows:
- The insurer provides automatic cover and spreads the cost of providing the cover over their whole portfolio of policies – cover cannot be deleted if the price is too high;
- The insurer provides cover with the option for the policyholder to opt out of the cover if the price is too high so it is clear they have made that decision in the event of a claim;
- The cover is optional and often very expensive in high-risk areas – policyholder has to make a decision at the commencement of the cover;
- The cover is not available at any cost which is highlighted in the policy.
So what does Flood mean in terms of an insurance policy jargon?
Generally, a flood is defined as the escape of water from any type of formal waterway such as a river, creek, reservoir, channel or dam as examples.
The Flood definition does not exclude water overflowing from a gutter, leaking from a pipe or tank or water run-off if it has not escaped from a waterway, as examples which are covered as a standard insured event.
So historically, it was an insurer’s responsibility to clearly inform a policyholder if Flood cover was not included. However, it is now almost a “buyer be aware” situation about Flood cover for a policyholder buying cover if they are not careful and be aware of the different policy covers offered.
One high profile insurer excludes any Business activity from a home. However, most insurers provide some limited coverage for such contents as office plant and equipment, stock and trade tools at the premises only.
The problem is that there is no cover for the business against its possible legal liability for injury or property damage to customers visiting the premises or others away from the premises. Also, there is no cover for the business’s legal liability in respect of any goods sold or manufactured. The reason for this is that it is difficult to underwrite the legal liability risk for the variety of business types that can be undertaken at home whereas contents cover is not so difficult to underwrite.
The result is that business owners need to have a separate Public / Products liability policy to cover their legal liability which many small home businesses would not understand.
The good news is that in the next few months a new Business Package policy will be available which includes all the required covers including legal liability and business interruption loss of income and extra expenses for many types of non-hazardous business.
If you have a spare room at home and are following a worldwide trend like Airbnb rentals to earn some extra money from short-term tenants, you need to be aware that all home policies have a legal liability exclusion for most business activities causing injury or property damage (as mentioned above).
Also, most policies will not cover tenant caused damage to your home or contents when letting out to others. Some insurers will insist you buy a Landlord policy which fixes some problems but creates others resulting in less cover than the normal home type of policy. Some others will insist you buy a Business package policy to get full coverage. And some insurers have a specific policy tailored for bed and breakfast businesses.
One good solution is to buy a separate Tenants’ risks policy which just covers the gaps mentioned above in a conventional home policy which occur as result of having rent-paying tenants in your home. This solution then does not prejudice the cover of your home policy like having a Landlord policy instead.
If you would like more information about any of the above articles, Donnellys would welcome your enquiry on (08) 8236 7789.
Note: This information is provided as general advice only to readers as a guide to Australian insurance policies. You should not rely solely on this information for your own situation and need to read the policy and PDS for any insurance that you are considering buying to ensure it suits your circumstances.
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