In New Zealand, “DIY insurance” is less about literally creating your own insurance policy and more about taking a proactive approach to managing your insurance needs, understanding the market, and potentially saving money on premiums. This typically involves comparing quotes, understanding policy wording meticulously, increasing excesses, and bundling insurance policies. But is it truly worth the effort, and can you actually save significant money on your property insurance this way? This article delves into the pros and cons of a do-it-yourself approach to property insurance in New Zealand, providing insights and actionable tips.
Understanding the New Zealand Property Insurance Landscape
New Zealand’s property insurance market is relatively competitive, with a mix of established insurers like IAG (State, AMI, NZI), Suncorp (AA Insurance, Vero), and Tower, as well as some newer players. The Earthquake Commission (EQC), now called Toka Tū Ake, plays a crucial role, covering land damage from earthquakes, volcanic eruptions, hydrothermal activity, landslides, and tsunamis, in addition to covering dwelling, bridge, culvert & underpass damage. For dwellings, Toka Tū Ake currently covers the first $300,000 (GST inclusive) of damage and the land under the home and outbuildings, as well as some surrounding land as defined in the EQC Act. The rest of the damage, and coverage for perils like fire, flood, and storm, typically falls under private insurance. Given this dual system, understanding both Toka Tū Ake coverage and your private insurer’s policy is crucial.
The cost of property insurance in New Zealand has been steadily increasing, influenced by factors such as the increasing frequency and severity of extreme weather events, rising rebuild costs, and the impact of inflation. Quotes can vary considerably between insurers, even for similar properties, making it essential to shop around. Moreover, many Kiwis are still underinsured – according to the Insurance Council of New Zealand (ICNZ), getting your sum insured right is critically important. The Sum Insured amount is the maximum amount that your insurance company will pay out to rebuild your home, but the homeowner must work this out, and it isn’t as easy as taking your home’s market value.
The “DIY” Steps to Saving on Property Insurance
Taking a DIY approach to property insurance requires time, effort, and a willingness to learn, but it can be rewarding in potential savings and peace of mind.
1. Thoroughly Assess Your Insurance Needs
The first step in any DIY insurance strategy is understanding exactly what you need to insure. This involves accurately calculating the replacement cost of your home, including materials and labor. Many homeowners make the mistake of insuring their property for its market value, which includes the land. You only need to insure the building structure itself. Consider using a professional valuation service or an online calculator, like the one offered by CoreLogic, to estimate the rebuild cost accurately. CoreLogic’s guide provides useful tips to calculating building insurance based on factors like size, construction type, region, and quality of finish. Failing to accurately assess your sum insured can lead to underinsurance, leaving you significantly out of pocket if you need to make a claim.
Beyond the building, consider contents insurance. Make a detailed inventory of your belongings, including their estimated replacement values. Don’t underestimate the value of your possessions; it all adds up. Think about specific items, like artwork, jewelry, or collectibles, that might require specialized coverage.
Also, determine your risk tolerance. Are you comfortable with a higher excess to lower your premium, or do you prefer a lower excess for more comprehensive cover? Understanding your comfort level will help guide your decision-making.
2. Compare Quotes from Multiple Insurers
Once you have a clear understanding of your insurance needs, the next step is to gather quotes from multiple insurers. Don’t just rely on the first quote you receive. Use online comparison websites, but also consider getting quotes directly from insurers, as some may not be listed on comparison sites. Be sure you’re comparing apples to apples – ensure that the quotes cover the same risks and have similar policy limits and excesses.
Pay close attention to the fine print. What are the exclusions? What are the limits on certain types of claims? Does the policy offer replacement as new, or just indemnity (depreciated value)? Understanding these details is crucial to making an informed decision.
For example, one insurer might offer a lower premium but have more restrictive clauses regarding flood damage, while another might have a higher premium but cover a wider range of flood-related events. Carefully weigh the benefits and drawbacks of each policy.
3. Negotiate with Insurers
Don’t be afraid to negotiate with insurers. Present them with competing quotes and see if they’re willing to match or beat the best offer. Often, insurers have some flexibility in their pricing, especially if you’re a good risk (e.g., no previous claims, well-maintained property).
Highlight any safety features you have in place, such as burglar alarms, smoke detectors, or security cameras. These can often lead to discounts on your premium. Consider installing additional security measures to further reduce your risk profile and potentially lower your insurance costs.
Also, inquire about multi-policy discounts. If you have multiple insurance needs (e.g., home, contents, car), bundling your policies with the same insurer can often result in significant savings.
4. Consider Increasing Your Excess
Increasing your excess (the amount you pay out of pocket for a claim) is a common way to lower your insurance premium. However, it’s essential to carefully consider the implications before increasing your excess. Make sure you can comfortably afford to pay the excess if you need to make a claim. A higher excess can save you money in the short term, but it could be costly if you have frequent claims.
For example, if you increase your excess from $500 to $1,000, your premium might decrease significantly. However, you’ll need to be prepared to pay the full $1,000 if you need to make a claim. Weigh the potential savings against the risk of having to pay a larger excess.
5. Regularly Review Your Policy
Your insurance needs can change over time. Regularly review your policy to ensure it still meets your requirements. Have you made any renovations or improvements to your home that could increase its rebuild cost? Have you acquired any new valuable possessions? Are there any changes to your risk profile (e.g., new trees near the house)?
It’s also a good idea to review your policy after major events, such as earthquakes or severe weather events. These events can highlight gaps in your coverage and prompt you to make necessary adjustments. Check if your area or region has changed and now becomes subject to new hazards.
Furthermore, keep an eye on market trends and new insurance products. New insurers may enter the market, offering competitive rates and innovative coverage options. Staying informed will allow you to make the best possible insurance decisions.
6. Understand Policy Exclusions and Limitations
This is arguably one of the most important DIY steps. Policy exclusions are the events or circumstances that the insurance policy does not cover. Limitations specify the maximum amount an insurer will pay for certain types of claims. Failing to understand these exclusions and limitations can lead to unpleasant surprises when you need to make a claim.
Common exclusions in property insurance policies include damage caused by wear and tear, gradual deterioration, pests, and faulty workmanship. Some policies may also exclude or limit coverage for specific types of water damage, such as seepage or rising damp.
Pay close attention to any exclusions related to natural disasters, such as earthquakes, floods, or landslides. Toka Tū Ake covers some of these but private insurers also have specific exclusions or limitations for properties in high-risk areas.
For example, if your property is located in a flood-prone area, your policy might have a higher excess or a lower limit for flood damage. Alternatively, the insurer might exclude flood damage altogether. Understand these limitations and take steps to mitigate your risk, such as installing flood barriers or raising electrical outlets.
Pros of a DIY Insurance Approach
- Potential Cost Savings: By comparing quotes, negotiating with insurers, and increasing your excess, you can potentially save a significant amount of money on your property insurance premiums. The savings can accumulate over time, making a DIY approach financially rewarding.
- Greater Control and Understanding: Taking a DIY approach allows you to have greater control over your insurance coverage and a deeper understanding of your policy. You’ll be more informed about what you’re covered for and what you’re not, reducing the risk of unpleasant surprises.
- Tailored Coverage: You can tailor your insurance coverage to your specific needs and circumstances. You’re not limited to standard policies and can choose the options that best suit your risk profile and budget.
Cons of a DIY Insurance Approach
- Time and Effort: A DIY approach requires a significant investment of time and effort. You’ll need to research different insurers, compare quotes, negotiate with insurers, and regularly review your policy.
- Risk of Errors: If you’re not familiar with insurance terminology and policy wording, you could make errors in your assessment of your coverage needs or in your interpretation of policy exclusions.
- Potential for Underinsurance: If you underestimate your rebuild cost or fail to accurately assess your contents, you could be underinsured, leaving you significantly out of pocket if you need to make a claim.
- Limited Expertise: Unless you have expertise in insurance, you may not be able to identify all the potential risks and exposures that your property faces. Professional brokers can identify risk factors that DIYers might overlook..
The Role of Insurance Brokers
While a DIY approach can be effective, it’s important to consider the role of insurance brokers. Brokers are independent professionals who can provide expert advice and guidance on your insurance needs. They have access to a wide range of insurers and can help you find the best coverage at the most competitive price.
Brokers can also help you navigate the complexities of insurance policies and understand the fine print. They can explain exclusions and limitations, and they can help you tailor your coverage to your specific needs. They also act as advocate if you ever need to file a claim, taking some of the burden off your shoulders and ensuring fair treatment from the insurer.
Using a broker doesn’t necessarily mean you’re abandoning the DIY approach. You can still be actively involved in the process by researching insurers, comparing quotes, and understanding your policy. Consider a hybrid approach and use a broker to support your DIY efforts.
Case Studies: DIY Insurance in Action
Case Study 1: The Underinsured Homeowner
John, a homeowner in Auckland, decided to take a DIY approach to his property insurance. He estimated the rebuild cost of his home based on its market value, without considering the actual cost of materials and labor. He chose a policy with a low premium, without carefully reviewing the exclusions. When a major storm caused significant damage to his roof, he discovered that his policy had a low limit on storm damage claims, leaving him significantly underinsured. He also had to pay out of pocket for part of the repairs.
Case Study 2: The Savvy Negotiator
Sarah, also an Auckland homeowner, took a more diligent DIY approach. She used an online calculator to accurately estimate her rebuild cost, and she gathered quotes from multiple insurers. She negotiated with the insurers, presenting them with competing quotes and highlighting her home’s security features. She increased her excess to lower her premium, but she made sure she could comfortably afford to pay the excess if needed. As a result, she saved over $500 per year on her property insurance without sacrificing coverage.
Case Study 3: The Broker-Assisted DIYer
Mark, a homeowner in Christchurch, decided to combine a DIY approach with the expertise of an insurance broker. He researched different insurers and gathered quotes online, but he also consulted with a broker to review his options. The broker helped him identify potential risks and exposures that he had overlooked, such as the risk of liquefaction in his area. Together, they tailored his coverage to address his specific needs, and the broker negotiated a better price than Mark could have obtained on his own.
Practical Tips for DIY Property Insurance in New Zealand
- Use online cost calculators: Utilize online tools to estimate your rebuild costs. There are many tools available, including those offered by quantity surveyors and specialized publications.
- Take photos and videos: Document your home’s contents and condition with photos and videos. This will make it easier to file a claim if necessary. Keep receipts and records of valuable items.
- Review your policy annually: Don’t just set it and forget it. Review your policy every year to ensure it still meets your needs.
- Stay informed about changes in regulations: Keep up to date with changes in insurance regulations and industry practices. The Insurance Council of New Zealand (ICNZ) website is a good resource.
- Ask questions: Don’t be afraid to ask your insurer or broker questions about anything you don’t understand.
- Understand ‘Replacement as New’: Check if your policy offers “replacement as new” cover for contents. This ensures you receive the full replacement cost of damaged or stolen items, without deduction for depreciation.
- Be Aware of Unoccupied Property Clauses: Most policies have limitations if the property is left unoccupied for extended periods (usually 30-60 days). Ensure you understand these clauses if you plan to be away from your home for an extended time.
- Review Landslide Cover: Particularly relevant in hilly areas, landslide cover is often limited or excluded within standard policies. Consider adding this coverage if your property is at risk.
FAQ Section
What is the biggest mistake homeowners make when assessing their property insurance needs? The biggest mistake is insuring their property for its market value rather than its rebuild cost. Market value includes the land, which doesn’t need to be insured.
How often should I review my property insurance policy? You should review your property insurance policy at least once a year, and more frequently if your circumstances change (e.g., renovations, new possessions, changes in risk profile).
Is it always cheaper to increase my excess? Increasing your excess will usually lower your premium, but it’s essential to make sure you can comfortably afford to pay the excess if you need to make a claim.
What are some common exclusions in property insurance policies? Common exclusions include damage caused by wear and tear, gradual deterioration, pests, and faulty workmanship. Some policies may also exclude or limit coverage for specific types of water damage or natural disasters.
What is the role of the Earthquake Commission (EQC)? EQC, now called Toka Tū Ake, provides natural disaster insurance cover for residential property for damage caused by earthquakes, volcanic eruptions, hydrothermal activity, landslides, and tsunamis. For dwellings, Toka Tū Ake covers the first $300,000 (GST inclusive) of damage.
- Do insurance comparison websites show all available insurers? Not always. Some insurers may not be listed on comparison websites. Consider getting quotes directly from insurers in addition to using comparison sites.
- What is the difference between ‘indemnity’ and ‘replacement as new’? ‘Indemnity’ cover pays the depreciated value of damaged items, while ‘replacement as new’ cover pays the full replacement cost, without deduction for depreciation.
- How does the age of my home impact my insurance premiums? Older homes can sometimes attract higher premiums due to the increased risk of issues like outdated wiring or plumbing. Discuss with your insurer any upgrades you’ve made.
- Am I covered for gradual damage, like a slow leak? Policies usually exclude damage resulting from gradual causes. Policies cover sudden or unexpected accidental damage.
References
- Insurance Council of New Zealand (ICNZ)
- Toka Tū Ake Earthquake Commission
- CoreLogic NZ
DIY property insurance in New Zealand can offer real opportunities for savings, but it requires commitment and careful consideration. Before diving in, assess your comfort level with risk, your available time, and your willingness to learn. If you’re diligent and well-informed, you can potentially save money and gain better control over your coverage. However, don’t hesitate to seek professional advice from an insurance broker to ensure you’re making the best decisions for your individual needs and circumstances. Start comparing quotes today and take the first step towards a more cost-effective and tailored approach to protecting your most valuable asset – your home!
