By Liam Hehir 

If you are renting, and you don't have liability insurance, you are flirting with financial ruin.

The Tenancy Tribunal hears literally thousands of disputes every year between landlords and tenants for damage caused to the property. The landlord nearly always wins.

Why?

Put simply, the Residential Tenancy Act is very harsh when it comes to tenant liability.

For example, all tenants with their name on the lease are jointly liable for damage any one tenant (or their guest) causes to the property.

The bacon fire

The famous Dunedin flat fire is a textbook illustration.

Six varsity students rented a house together. One of the flatmates was cooking lunch. Leaving bacon frying in the pan, he went next door to see a neighbour. In the ensuing fire, the house burned down, causing about $150,000 worth of damage.

The aftermath

Unfortunately, none of the flatmates were insured.

The landlord's insurer paid the landlord. However, the insurer then exercised its legal rights and sued all six flatmates collectively - not just the one whose negligence caused the fire. The flatmates had already accumulated sizable student loans, and none of them had any assets to speak of.

In the District Court, the judge made some sympathetic comments, but had no option other than to apply the law.

Fortuitously, media exposure convinced the insurer to drop the lawsuit against the innocent tenants. Had the insurer pushed the claim (and sometimes they do if there is a chance of recovery) the tenants would have had two options:

• Convince their parents to take out another mortgage to pay the insurance company; or
• Declare bankruptcy.

Get liability insurance

Heed the words of Sir Winston Churchill:

"If I had my way, I would write the word "insure" upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever"

For too many renters, be they students living hand to mouth, or simply wage earners struggling to make ends meet, liability insurance, if considered at all, is seen as a ‘nice to have' and not a ‘need to have'.

1.23 million New Zealanders rent their home and a huge proportion doesn't have any liability insurance. Property prices, though falling, are historically high.

That terrifying cocktail of facts is why the above scenario happens far too often.

Most insurers, probably including your bank, offer adequate liability coverage with their contents packages. Premiums may start at around $250 a year (most insurers will allow you to pay this in instalments).

That is not a high price to prevent what happened to the Dunedin flatmates happening to you, or your family.