Property insurance in New Zealand is crucial, yet many Kiwis find themselves underinsured or unaware of crucial policy details. Insurers aren’t always forthcoming with information that could save you money or ensure adequate coverage. This article dives into the nitty-gritty of property insurance, revealing what insurers often gloss over and providing actionable tips to protect your assets in Aotearoa.
Understanding Your Policy Wording – It’s All in the Fine Print
Probably the single most important piece of advice anyone can give you is to actually read your policy document. I know, it’s lengthy and often confusing, but buried within those pages are the specifics of what is covered, what is excluded, and under what conditions. For example, many policies have specific clauses relating to tree damage. If a tree on your property falls and damages your neighbour’s fence, your policy might cover the damage, but only if the tree was deemed healthy and well-maintained. If poor maintenance was the cause, your claim could be denied. Don’t rely on assumptions; know your policy inside and out.
The Truth About Sum Insured vs. Market Value
Many homeowners mistakenly insure their property for its market value. This is dangerous. Your sum insured should reflect the actual cost to rebuild your home, not what you could sell it for. Market value includes the land, which isn’t at risk in a fire or earthquake. Rebuilding costs, however, cover materials, labor, demolition, and professional fees. Undervaluation can lead to severe financial hardship if a major event occurs. As a guide, use online calculators provided by companies like CoreLogic or QV. These can help estimate rebuilding costs based on your property’s specifications. Keep in mind that these calculators are just tools; you may wish to seek a professional independent assessment to ensure accuracy.
Hidden Exclusions – What You’re Not Covered For
Insurers often don’t highlight specific exclusions during the sales process. Common exclusions include: gradual damage (like slow water leaks), damage caused by faulty workmanship (unless specifically stated), and pre-existing conditions. For instance, if your roof has been leaking for months, and it finally collapses during a storm, your insurer may refuse to cover the damage, citing gradual deterioration. Understanding these exclusions is paramount. Check your policy document for a comprehensive list and clarify any doubts with your insurer.
The Earthquake Commission (EQC) Levy – What You Need To Know
In New Zealand, earthquake damage is initially covered by the Earthquake Commission (EQC). As of 2024, the EQC covers residential buildings up to a certain amount for damage from earthquakes, landslips, hydrothermal activity, and tsunamis. The EQC levy is collected as part of your insurance premium. However, it’s important to understand what the EQC covers and what falls under your private insurer. For example, the EQC typically covers land damage immediately surrounding your house and dwelling. Any damage exceeding EQC’s cap shifts to your private insurance policy. It is vital to ensure your private insurance coverage is sufficient to cover costs beyond the EQC coverage amount. Check the latest EQC information on their official website for the current cap and coverage details: Earthquake Commission.
The Impact of Excess – Paying More Now to Save Later
The excess is the amount you pay out of pocket when making a claim. Choosing a higher excess can lower your premium, but it also means you’ll pay more if something goes wrong. Weigh the pros and cons carefully. If you’re generally risk-averse and have savings to cover a higher excess, it might be a viable option. However, if you’re on a tight budget and wouldn’t be able to afford to pay a large excess, a lower excess might be preferable. Consider your personal financial circumstances when making this decision.
Contents Insurance – Replacement vs. Indemnity Value
When it comes to contents insurance, there are two main types of cover: replacement value and indemnity value. Replacement value covers the cost of replacing your damaged or stolen items with new ones, regardless of their age. Indemnity value, on the other hand, only covers the current value of your items, taking into account depreciation. While indemnity value policies are cheaper, you’ll likely receive significantly less money if you need to make a claim. Replacement value is generally the better option for most homeowners, as it allows you to fully replace your belongings. Be particularly diligent with high-value item documentation—receipts, photos, and appraisals will speed up claim processing; otherwise, insurers may only offer depreciated values when there is no proof.
The Importance of Regular Policy Reviews
Your insurance needs change over time. Renovations, new purchases, and changes in building regulations can all affect the amount of coverage you need. Review your policy at least annually to ensure it still meets your needs. If you’ve made any improvements to your home, such as adding a deck or renovating the kitchen, inform your insurer so they can adjust your coverage accordingly. Over time costs increase, therefore consider increasing payments for cover to make sure your insurance keeps up. Don’t wait until disaster strikes to realize you’re underinsured.
Being Honest – The Duty of Disclosure
Insurance policies are based on the principle of “utmost good faith,” which means you have a legal duty to disclose all relevant information to your insurer. This includes any past claims, existing damage, or potential risks to your property. If you fail to disclose something that could affect your insurer’s assessment of the risk, they may refuse to pay a claim, even if the undisclosed information isn’t directly related to the damage. Be upfront and honest with your insurer, even if it means paying a higher premium. It’s better to be honest and have peace of mind than to risk having your claim denied.
The Impact of Empty Homes
Many policies have clauses around unoccupied buildings. If a property is left empty for an extended period (often more than 30-60 days, but check your policy), your coverage may be affected. Vacant homes are more vulnerable to vandalism, theft, and undetected damage (like a burst pipe). If you’re planning to leave your property unoccupied for a prolonged period, inform your insurer and ask about any specific requirements, such as arranging for regular inspections by a trusted person or friend. You might need to specifically endorse your policy to maintain full coverage. Failing to do so could invalidate your claim.
Flood Cover – A Complex Issue
Flood cover can be complex in New Zealand. Some policies exclude flood damage altogether, while others offer limited cover. If your property is located in a flood-prone area, it’s essential to understand the specifics of your flood cover. Check whether your policy covers damage from river flooding, surface water flooding, or coastal inundation. Also, be aware of any exclusions related to specific flood defences, such as levees or stopbanks. If you’re concerned about flood risk, consider obtaining a flood risk assessment from your local council or a specialist consultant. This can help you understand your risk and take steps to mitigate it, such as installing flood barriers or raising your home above flood level.
The Value of Independent Advice
Insurance brokers work for you, not the insurance company. They can assess your needs, compare policies from different insurers, and provide unbiased advice. While brokers charge a fee, their expertise can save you money in the long run by ensuring you get the right coverage at the best price. Furthermore, Insurance brokers have access to a range of carriers. They are better equipped to find you suitable coverage, especially for more complex needs. It is worth checking independent comparisons and reviews like those found on websites such as Consumer NZ: Consumer NZ Insurance.
Case Study: The Unseen Water Leak
Consider this scenario: Sarah owned a rental property that had been insured for several years. One day, she discovered a significant water leak originating behind a shower wall. When she filed a claim, the insurer rejected it, citing a clause that excluded “gradual damage.” The insurer argued that the leak had been occurring for an extended period and Sarah had failed to maintain her property adequately. Sarah, however, argued that the leak was hidden and she had no way of knowing it existed. After a lengthy dispute, Sarah eventually accepted a partial settlement, covering only the cost of repairing the immediate damage but not the underlying cause of the leak. This case highlights the importance of understanding policy exclusions and the potential for disputes over gradual damage.
Renovations – Tell Your Insurer!
Undertaking renovations? Even seemingly minor ones? Inform your insurer before work commences. Renovations increase the value of your property. They represent a change of risk to your insurer, and should something happen mid-renovation, your existing policy sum insured amount may no longer be adequate. Your insurer might require you to increase your coverage, or they may have specific requirements regarding the builders you use (e.g., licensed and insured). Not informing your insurer could void your policy if damage occurs during or after the renovation. As an example, If you are significantly altering the plumbing or electrical systems, your insurance company will want to be aware of this in advance, or may only partially cover costs, if covered at all.
Demolition Cover: Understand the Cost
Demolishing and rebuilding can be expensive. It’s not simply the cost of the new building; it’s also the costs associated with demolition, site clearance, and potentially, compliance with new building codes. Make sure your cover is sufficient to deal with all associated costs, not just the build cost. Building codes change; if your old home needed replacing, the new one may need to meet significantly higher standards, incurring extra costs.
Landslip Cover: The Details Matter
Many areas in New Zealand are prone to landslips. It’s crucial to understand your policy’s landslip coverage. Does it cover the cost of retaining walls? Does it cover the cost of stabilising the land? What are the limits? The EQC may cover some land damage, but your private insurer will likely be responsible for costs exceeding the EQC cap. Get clarification from your insurer on what’s covered, especially if residing on land considered to be at medium to high risk.
Material Facts & Non-Disclosure
When applying for insurance, you’re required to disclose all “material facts.” A material fact is any information that could influence the insurer’s decision to accept the risk or determine the premium. Failing to disclose a material fact, even unintentionally, is called “non-disclosure.” If you commit non-disclosure, the insurer can avoid the policy, meaning they can refuse to pay a claim and cancel your coverage. Examples of material facts include: previous insurance claims, previous instances of subsidence or flooding, known defects in the property (e.g., leaky cladding), and criminal convictions of anyone living at the property. When in doubt, disclose it.
Specific Items & Collections
Do you have valuable artwork, jewellery, antiques, or collections? Standard contents policies often have limits on the amount they’ll pay for individual items. If your items exceed these limits, you may need to list them separately on your policy and pay an additional premium. Document your valuables with photos, videos, and appraisals. Keep receipts and valuations in a safe place (ideally offsite). This will make it easier to prove their value if you need to make a claim. Many policies may also require items over a certain value to be kept in a safe.
Tree Removal Costs
As touched on earlier, if a tree damages your property, insurance may or may not cover removal costs. Policies are usually based on the context of the tree’s health and who exactly owns the trees. If the trees are on a public lot or neighbour’s lot, responsibility and compensation will generally be different. Note that some policies will pay only for removing the portion of the tree that’s actually damaged the property and you may be on the hook for removing the rest.
Complaints: Know Your Rights
If you’re unhappy with your insurer’s decision, you have the right to complain. First, lodge a formal complaint with your insurer’s internal disputes resolution process. If you’re still not satisfied, you can escalate your complaint to the Insurance & Financial Services Ombudsman (IFSO). The IFSO is an independent body that investigates and resolves disputes between insurers and policyholders. Remember to document all communication with your insurer and keep copies of all relevant documents. Using the IFSO service is free. You can visit the IFSO website for more information: Insurance & Financial Services Ombudsman.
FAQ Section
What happens if I am underinsured?
If you are underinsured, your insurer may only pay a portion of your claim. This is known as “average.” For example, if you’re insured for 80% of the rebuilding cost and your home is destroyed, the insurer may only pay 80% of the claim, leaving you to cover the remaining 20%. Underinsurance can have devastating financial consequences, so it’s essential to ensure you have adequate coverage.
How often should I review my policy?
You should review your policy at least annually, or whenever there’s a significant change in your circumstances, such as renovations, a new purchase, or a change in building regulations. Regular reviews ensure your coverage remains adequate and up-to-date.
What is the difference between ‘named perils’ and ‘all risks’ insurance?
A “named perils” policy covers only risks specifically listed in the policy. An “all risks” policy (also known as “comprehensive” cover) covers all risks except those specifically excluded. All risks policies generally offer broader protection, so long as the even isn’t excluded and would usually be preferable.
Can my insurer cancel my policy?
Yes, your insurer can cancel your policy under certain circumstances, such as non-payment of premiums, non-disclosure of material facts, or a significant increase in risk. The insurer must provide you with written notice of cancellation. Always pay your premiums on time and be honest with your insurer to avoid cancellation.
Does my policy cover damage caused by tenants?
Most standard home insurance policies do not cover malicious damage caused by tenants. If you rent out your property, you’ll need a specific landlord insurance policy. Landlord insurance typically covers malicious damage by tenants, loss of rent, and legal liability.
References
- Earthquake Commission (EQC) Official Website
- Consumer NZ Insurance Reviews
- Insurance & Financial Services Ombudsman (IFSO) Website
Don’t let insurers keep you in the dark. Take control of your property insurance by understanding your policy, assessing your risks, and seeking independent advice. By proactively managing your insurance, you can protect your assets and ensure financial security in the event of unforeseen circumstances. Don’t delay. Contact a broker to get a quote today. Your future self will thank you.
