Building vs. Contents: NZ Property Insurance Coverage Differences Explained

Understanding the difference between buildings and contents insurance is crucial for New Zealand homeowners and renters. Buildings insurance covers the structure of your property and its fixtures, while contents insurance protects your personal belongings within the property. Knowing what falls under each category is vital to ensure you have adequate cover in case of damage, loss, or theft. This article breaks down the nuances of both types of insurance, providing practical guidance to help you make informed decisions about protecting your assets in New Zealand.

Buildings Insurance: Protecting the Structure of Your Home

Buildings insurance, often referred to as house insurance, primarily covers the physical structure of your home. This includes the walls, roof, floors, and permanent fixtures. Think of it as insuring the bricks and mortar, along with anything permanently attached to them. Let’s delve deeper into the specifics:

What Exactly Does Buildings Insurance Cover? Generally, buildings insurance in New Zealand covers perils such as fire, storm damage (including wind and flooding, subject to specific policy exclusions), earthquakes, landslips, and vandalism. Here’s a more detailed breakdown:

• The Main Structure: This includes the main dwelling, any attached garages, and permanently installed features.
• Fixtures and Fittings: Built-in wardrobes, kitchen cabinets, bathroom fixtures (like toilets, sinks, and bathtubs), and permanently installed floor coverings (like carpets and tiles) are generally covered.
• External Structures: Fences, driveways, paths, and letterboxes are often included, but typically with specific limits on the amount covered. For instance, a policy might cover fence damage up to $5,000.
• Utilities Infrastructure: Pipes, cables, and drains that service the property are usually covered for damage originating on the property.
• Landscaping: Some policies offer limited cover for damage to gardens and trees, often related to events like fire or storm.

Important Exclusions to Be Aware Of: Buildings insurance policies usually contain a list of exclusions, which are situations or types of damage that are not covered. Common exclusions include:

• Wear and Tear: Gradual deterioration due to wear and tear is typically not covered. This means that replacing a leaky roof due to age is unlikely to be covered, but damage caused by a sudden storm might be.
• Faulty Workmanship: Damage resulting from poor construction or faulty repairs is often excluded.
• Lack of Maintenance: Insurers expect you to maintain your property. Damage resulting from neglect, such as failing to repair a leaky pipe, may not be covered.
• Unoccupied Property: Many policies have clauses about the period a property can be left unoccupied. Leaving your house empty for extended periods (e.g., more than 60 days) might invalidate your cover.
• Earthquake-Prone Land: Damage caused by land movement in identified earthquake-prone areas might require specialized insurance or specific endorsements to your policy. New Zealand is known for its seismic activity, with websites like EQC (Earthquake Commission) providing information and coverage options.

Determining the Sum Insured: One of the most critical aspects of buildings insurance is determining the correct sum insured. This is the maximum amount the insurer will pay out if your house is completely destroyed. It is not the market value of your property, but rather the cost to rebuild it from scratch. Underestimating the sum insured can lead to significant financial loss if you need to make a claim.

There are a few ways to estimate the rebuild cost:

• Professional Valuation: Engaging a registered valuer to assess the rebuild cost provides the most accurate estimate. This is especially recommended for complex or unique properties.
• Online Calculators: Many insurance companies offer online rebuild cost calculators. These tools use factors like the size of your house, construction materials, and location to generate an estimate. However, they should be used as a guide only and may not be completely accurate.
• Quantity Surveyor: A quantity surveyor can provide a detailed breakdown of the costs involved in rebuilding your home, considering labor, materials, and other expenses.

Remember to review and update your sum insured regularly, especially after renovations or significant home improvements. Building material costs and labor rates can fluctuate, so it’s important to ensure your cover remains adequate.

Contents Insurance: Protecting Your Personal Belongings

Contents insurance, on the other hand, covers your personal belongings inside your home. This includes furniture, appliances, clothing, electronics, jewelry, and other items that you would take with you if you moved. Unlike buildings insurance, contents insurance covers items that are not permanently attached to the structure.

What Items Are Typically Covered by Contents Insurance? Contents insurance policies generally cover damage, loss, or theft of your belongings due to events such as fire, burglary, water damage, and natural disasters (subject to policy terms and conditions). Here’s a more detailed look:

• Furniture: Sofas, chairs, tables, beds, and other furniture items are typically covered.
• Appliances: Refrigerators, washing machines, ovens, microwaves, and other appliances are included.
• Electronics: Televisions, computers, laptops, smartphones, and other electronic devices are covered.
• Clothing and Personal Items: Clothing, shoes, handbags, and other personal belongings are generally covered.
• Jewelry and Valuables: Most policies have limits on the amount they will pay out for jewelry, artwork, and other valuables. You may need to specify these items separately to ensure they are adequately covered.
• Money and Credit Cards: Policies often have limited cover for cash, credit cards, and other financial instruments.
• Food Spoilage: Some policies cover the cost of replacing spoiled food due to power outages.

Understanding Limits and Sub-Limits: Contents insurance policies often have specific limits on the amount they will pay out for certain types of items. These are called sub-limits. For example, a policy might have a sub-limit of $2,000 for jewelry, meaning that the most the insurer will pay out for lost or stolen jewelry is $2,000, regardless of its actual value. Another example is sporting equipment; policies could have limits on per-item or total claims.

“New for Old” vs. “Indemnity” Cover: Contents insurance policies typically offer either “new for old” or “indemnity” cover. Understanding the difference is crucial:

• “New for Old” Cover: This means that if an item is damaged or stolen, the insurer will replace it with a brand-new item of similar type and quality, regardless of the item’s age. This is generally the preferred option, as it ensures you are not out of pocket for depreciation.
• “Indemnity” Cover: This means that the insurer will pay out the current market value of the item, taking into account depreciation. If you have indemnity cover, you will only receive the depreciated value of your belongings, which may not be enough to replace them with new items.

Items Temporarily Removed From the Home: Most contents insurance policies provide some level of cover for items that are temporarily removed from your home, such as laptops, cameras, and jewelry. However, the cover may be limited, and certain conditions may apply. For example, if your camera is stolen from your car while you are traveling, your contents insurance may cover the loss, but only up to a certain limit. Check your policy wording for details.

Important Exclusions: Here are some common exclusions for contents insurance:

• Wear and Tear: Just like with buildings insurance, contents insurance generally does not cover wear and tear.
• Pest Damage: Damage caused by pests like rodents or insects is usually excluded.
• Business-Related Items: Items used for business purposes may not be covered under a standard contents insurance policy. You may need to take out a separate business insurance policy to cover these items.
• Motor Vehicles: Motor vehicles are typically not covered under contents insurance, as they require separate motor vehicle insurance.
• High-Value Items Not Specified: As noted earlier, high-value items like jewelry or artwork may need to be specifically listed on your policy to be covered adequately.

Estimating the Value of Your Contents: It’s essential to accurately estimate the value of your contents to ensure you have adequate cover. Underestimating the value can leave you underinsured, meaning that you may not receive enough money to replace all of your belongings if they are damaged or stolen. Here’s how to conduct a contents valuation:

• Room-by-Room Inventory: Go through each room in your house and make a list of all your belongings, including furniture, appliances, electronics, clothing, and personal items. Assign an estimated value to each item.
• Use an Online Contents Calculator: Similar to buildings insurance, many insurance companies offer online contents calculators to help you estimate the value of your contents. These tools can be helpful, but you should still conduct a thorough room-by-room inventory to ensure accuracy.
• Keep Receipts and Valuations: Keep receipts and valuations for expensive items like jewelry, artwork, and electronics. This will make it easier to prove the value of these items if you need to make a claim.
• Regularly Update Your Inventory: Update your contents inventory regularly, especially after you purchase new items or make significant changes to your belongings.

Case Studies: Real-Life Examples of Insurance Claims

Let’s examine a couple of hypothetical case studies to illustrate the importance of understanding your buildings and contents insurance policies.

Case Study 1: Fire Damage

The Smith family owns a home in Auckland. A faulty electrical wire causes a fire that severely damages their kitchen and causes smoke damage throughout the house. The fire also destroys their furniture, appliances, and clothing in the kitchen area.

• Buildings Insurance: The Smiths’ buildings insurance covers the cost of repairing the kitchen, including replacing damaged walls, cabinets, and flooring. It also covers the cost of cleaning up the smoke damage throughout the house.
• Contents Insurance: The Smiths’ contents insurance covers the cost of replacing the furniture, appliances, and clothing that were destroyed in the fire. Because they had “new for old” cover, they were able to replace their damaged items with brand-new ones.

Had the Smiths only had buildings insurance, they would have been left to cover the cost of replacing their belongings themselves, potentially incurring a significant financial burden.

Case Study 2: Burglary

John owns an apartment in Wellington. While he is at work, burglars break into his apartment and steal his laptop, television, jewelry, and other valuables.

• Contents Insurance: John’s contents insurance covers the cost of replacing his stolen laptop, television, jewelry, and other valuables. However, his policy has a sub-limit of $1,000 for jewelry, so he only receives a maximum of $1,000 for his stolen jewelry, even though it was worth more. Because he hadn’t listed his expensive artwork separately on the policy, his claim for that item was also limited.
• Buildings Insurance: Only if the burglary caused damage to the structure of the building or permanently fixed items (like a door or window forced open) would John make a claim on his buildings insurance (if he owns the building or is responsible for these types of repairs as outlined in his tenancy agreement).

This case study highlights the importance of understanding the limits and sub-limits of your contents insurance policy. John would have been better protected if he had specifically listed his valuable jewelry and artwork on his policy and ensured that he had adequate cover for these items.

Tips for Choosing the Right Insurance Policy in New Zealand

Choosing the right insurance policy can feel overwhelming. Here are some practical tips to guide you through the process and help you secure appropriate coverage:

1. Shop Around and Compare Quotes: Don’t settle for the first quote you receive. Get quotes from multiple insurance companies and compare the coverage, premiums, and policy terms. Websites like Money.co.nz provide comparisons for home insurance.
2. Read the Policy Wording Carefully: Insurance policies can be complex and full of legal jargon. Take the time to read the policy wording carefully to understand what is covered and what is excluded. Pay particular attention to the exclusions, limits, and sub-limits. If you don’t understand something, ask the insurance company to explain it to you.
3. Consider Your Individual Needs: Consider your individual needs and circumstances when choosing an insurance policy. Think about the value of your belongings, the risks your property faces (e.g., earthquake, flooding), and your budget. Choose a policy that provides adequate cover for your specific needs.
4. Check the Insurer’s Financial Strength Rating: The Financial Strength Rating indicates an insurer’s ability to meet its financial obligations. Ratings are provided by independent rating agencies. Select an insurer with a strong financial strength rating to ensure that they will be able to pay out your claim if you need to make one.
5. Understand the Claims Process: Find out about the insurer’s claims process before you take out a policy. Ask about the steps involved in making a claim, the documentation required, and the timeframe for settlement.
6. Consider Excess Options: The excess is the amount you have to pay towards a claim before the insurance company pays out the rest. Generally, opting for a higher excess will lower your premium, but it will also mean you have to pay more out of pocket if you make a claim. Choose an excess level that you are comfortable with.
7. Bundle Your Insurance Policies: Some insurance companies offer discounts if you bundle your insurance policies (e.g., home, contents, and car insurance). This can be a good way to save money on your insurance premiums.
8. Keep Your Policy Up to Date: Review your insurance policy regularly to ensure that it still meets your needs. Update your sum insured and contents value as needed, and inform your insurer of any changes to your property or circumstances.

Earthquake Insurance in New Zealand

Given New Zealand’s location on the Pacific Ring of Fire, earthquake coverage is a significant consideration for homeowners. While the EQC provides natural disaster insurance (including earthquake) for residential properties, there are limits to this coverage. The EQC covers land damage and damage to your home up to a certain value. For amounts exceeding that, you’ll need private insurance.

It’s important to understand the EQC’s coverage limits and how your private insurance policy interacts with the EQC cover. Some policies provide “top-up” cover, which kicks in after the EQC limit is reached. Also, evaluate your home’s vulnerability to earthquake damage and consider whether you need additional coverage.

Contents Insurance for Renters

Even if you don’t own your home, contents insurance is still essential. Your landlord’s insurance only covers the building itself, not your personal belongings. Renters should take out contents insurance to protect their furniture, appliances, clothing, electronics, and other possessions from theft, damage, or loss.

When taking out contents insurance as a renter, accurately estimate the value of your belongings and choose a policy that provides adequate cover. Also, check whether the policy covers items that are temporarily removed from the home, such as laptops and cameras.

Navigating the Claims Process

Making an insurance claim can be stressful, especially after a damaging event. Here’s a general overview of the claims process in New Zealand:

1. Contact Your Insurer: As soon as possible after the event, contact your insurance company to report the damage or loss.
2. Provide Information: Be prepared to provide details about the event, including the date, time, location, and cause of the damage or loss. You will also need to provide information about the damaged or stolen items, including their value and age.
3. Document the Damage: Take photos or videos of the damage before you start cleaning up or making repairs. This will help the insurer assess the extent of the damage.
4. Complete a Claim Form: The insurer will provide you with a claim form to complete. Fill out the form accurately and completely, and attach any supporting documentation, such as receipts, valuations, and police reports.
5. Cooperate With the Insurer: Cooperate with the insurer throughout the claims process. Provide them with any information they request and be available to answer their questions.
6. Assessors and Quotes: The insurer may send an assessor to inspect the damage. They may also ask you to obtain quotes for repairs or replacements.
7. Settlement: Once the insurer has assessed your claim, they will make a settlement offer. Review the offer carefully and make sure it adequately covers the cost of repairing or replacing your damaged or stolen items.

If you are not satisfied with the insurer’s settlement offer, you have the right to negotiate with them or seek a second opinion. You can also contact the Insurance & Financial Services Ombudsman (IFSO) Scheme for assistance with resolving disputes.

Frequently Asked Questions (FAQ)

Below are some commonly asked questions about buildings and contents insurance in New Zealand:

What is the difference between buildings insurance and house insurance?

Buildings insurance and house insurance are essentially the same thing. They both refer to insurance that covers the physical structure of your home, including the walls, roof, floors, and permanent fixtures.

Do I need both buildings and contents insurance?

If you own your home, it is highly recommended to have both buildings and contents insurance. Buildings insurance protects the structure of your home, while contents insurance protects your personal belongings. If you rent, you only need contents insurance to protect your belongings.

How much contents insurance do I need?

The amount of contents insurance you need depends on the value of your personal belongings. Conduct a thorough room-by-room inventory and estimate the replacement cost of all your items. Choose a sum insured that is sufficient to cover the total value of your belongings.

What is an excess?

The excess is the amount you have to pay towards a claim before the insurance company pays out the rest. For example, if you have an excess of $500 and you make a claim for $2,000, you will have to pay $500, and the insurance company will pay the remaining $1,500.

What happens if I underinsure my property?

If you underinsure your property, you may not receive enough money to repair or replace your damaged or stolen items. The insurer may reduce the payout proportionally to the amount of underinsurance, leaving you out of pocket for a significant portion of the cost.

Are there any discounts available for insurance?

Yes, many insurance companies offer discounts for various reasons, such as bundling your insurance policies, installing security systems, or having a good claims history. Ask your insurer about available discounts.

My house is damaged by an earthquake. What do I do?

First, ensure your safety and the safety of others. Then, contact your insurer to report the damage. If the damage is significant, contact the Earthquake Commission (EQC). Document the damage with photos and videos. Cooperate with the insurer and the EQC throughout the claims process.

Does contents insurance cover items stolen from my car?

Some contents insurance policies may cover items stolen from your car, but the cover is usually limited. Check your policy wording for details and limits.

What should I do if my claim is denied?

If your claim is denied, ask the insurer for a written explanation of the reasons for the denial. Review the policy wording carefully to see if the denial is justified. You can negotiate with the insurer or seek a second opinion. You can also contact the Insurance & Financial Services Ombudsman (IFSO) Scheme for assistance with resolving disputes.

References

Earthquake Commission (EQC) – Understanding EQC Cover

Money.co.nz – New Zealand Home Insurance Comparison

Protecting your home and belongings is one of the most important investments you will make. Don’t leave it to chance. Secure your assets with the right insurance coverage today. Start by reviewing your existing policies or comparing quotes from reputable providers. Take the time to understand the policy details and ensure you have adequate protection for your unique needs. Knowing that you’re properly insured will give you peace of mind, knowing you will be financially secure, no matter the circumstance.