Why tenants should always insure their contents and have public liability insurance.

Picture a high rise apartment building and a young student renting a one bedroom unit on an upper floor. He goes out leaving a candle burning which causes a fire.

The fire is quickly extinguished by a sprinkler fitted into the ceiling. The big problem occurs with the volume of water pumped out by the sprinkler which not only floods his apartment but dozens in the floors below.

While the body corporate insurance covered the building and the carpets in the common areas, it did not cover the contents such as furniture, electronic goods, clothes etc. of any of the tenants.

In this case, not one single tenant had any insurance and as a result they have all suffered an uninsured loss from a few hundred dollars to tens of thousands.

The tenant that left the candle burning did not have contents insurance either. Why, he did not think his stuff was worth much. Further, being in a modern building with sprinklers and on an upper floor, he did  think his low value contents were likely to be stolen or burnt. What he overlooked was that by purchasing contents insurance for around $1 per day, he would have had $10 million, $20 million or even $30 million public liability cover with his contents insurance and he would be protected from all the demands from angry tenants and the body corporate insurer as they seek recovery.

This is valuable warning to anyone renting a home, flat or unit.

It is not just residential tenants that should consider this risk. So often I have attended shopping centres following a burst water pipe, discharged sprinkler, leaking roof or blocked drain and found that several of the tenants are not insured. They felt there was no need for this cover due to the same thoughts on the low risk of fire and burglary.

The reality is that the monetary losses from water perils, of all types, far exceeds losses by fire in Australia and New Zealand.

The difference with insuring your contents in a commercial situation is that you have to buy public liability insurance separately, albeit as an optional extra under a business insurance policy.

If you are in any doubt as to the coverage you should consider, please discuss it with your local insurance broker.