Property insurance in New Zealand often seems like a maze of fine print and complicated jargon. This article cuts through the confusion, debunking common myths and offering clear, actionable advice to ensure you’re properly protected.
Myth 1: All Property Insurance Policies are the Same
This is a dangerous assumption. While basic policies might seem similar on the surface, the differences in coverage, exclusions, and claim processes can be significant. One policy might offer full replacement cover, meaning your home is rebuilt to its original standard regardless of current construction costs. Another might only offer indemnity value, which accounts for depreciation. For example, if your ten-year-old roof is damaged, an indemnity policy might only pay out the depreciated value, leaving you to cover a substantial portion of the replacement cost. Consider a house fire scenario. A policy with contents insurance up to $100,000 might seem ample, but if you own high-value items like antiques or artwork, you’ll need specified item cover added to your policy. Always compare policies carefully, paying close attention to the policy wording and limits. It’s also important to understand the difference between ‘replacement’ and ‘indemnity’ value, and how each affects your claim payout.
Myth 2: I Don’t Need Insurance if My Home is Earthquake-Strengthened
While earthquake strengthening reduces the risk of significant damage, it doesn’t eliminate it entirely. Even strengthened homes can suffer damage from earthquakes, such as broken windows, damage to internal walls, or foundation issues. Furthermore, insurance covers risks beyond earthquakes, including fire, flood, storms, and theft. According to the Earthquake Commission (EQC), properties with earthquake strengthening still need insurance to cover potential damages. Many policies also include cover for landslip and tsunami, vital considerations for certain areas of New Zealand. Think of it this way: earthquake strengthening is like wearing a seatbelt – it increases your safety, but doesn’t make an accident impossible. Comprehensive insurance is your overall protection plan.
Myth 3: My Land is Covered by My House Insurance
Generally, standard house insurance policies do not cover land. The Earthquake Commission (EQC) provides natural disaster cover for land, but this is limited to certain types of damage and only for residential land within specific limits. For example, EQC covers land damage caused by natural disasters up to a certain area around your home and dwelling. It’s crucial to understand the limitations of EQC cover and consider additional cover for your land. Landslide, erosion, or contamination can be costly to remediate, and standard house insurance won’t cover these events. If you live in a high-risk area for landslips or erosion, consider specialist land insurance options or explore engineering solutions to mitigate the risk. The cost of land remediation can easily exceed the value of your home, making it a critical consideration.
Myth 4: I Only Need to Insure for the Mortgage Amount
This is a potentially disastrous mistake. You need to insure for the full replacement cost of your home, not just the outstanding mortgage balance. If your home is destroyed, the bank only cares about recovering the mortgage amount. You’re responsible for the rest. The replacement cost includes the cost of demolishing the existing structure, removing debris, and rebuilding a new home of similar size and quality. This cost can be significantly higher than the market value or mortgage amount, especially with rising construction costs. Get a professional valuation to determine an accurate replacement cost. Regularly review your sum insured (the amount you’re insured for) to ensure it’s adequate, especially after renovations or building material price increases. Also, factor in the cost of inflation and unexpected changes in the construction market. Using an online building cost calculator can give you a rough estimate but always consult an expert.
Myth 5: Pre-existing Conditions are Always Covered
This is a common misunderstanding. While some policies might cover certain pre-existing conditions, coverage is often limited or excluded entirely. A “pre-existing condition” could refer to structural issues, such as leaks or rot known to you before taking out the policy or a faulty plumbing system. It’s crucial to disclose any known pre-existing conditions to your insurer when applying for cover and understand the impact on your policy. In some cases, you may need to rectify the issue before you can obtain full cover. Failure to disclose could invalidate your policy. Obtain a building report before purchasing a property and disclose any findings to your insurer. If you discover a pre-existing condition after taking out the policy, inform your insurer immediately and explore options for remediation and coverage. For example, a poorly maintained roof that leaks during a storm might not be covered if the insurer determines that the leak was already present and contributing to the damage.
Myth 6: My Contents are Covered Anywhere in the World
Most standard contents insurance policies offer limited cover for items taken outside your home. This cover is generally restricted to a specific amount and may only apply to certain types of losses, such as theft. If you frequently travel with expensive items like laptops, cameras, or jewelry, you may need to purchase additional cover. Some policies offer “all risks” cover for contents, which provides broader protection for accidental loss or damage worldwide. Check the policy wording carefully to understand the limits and exclusions. For example, a standard policy might cover $5,000 for items taken overseas for personal use, but an “all risks” policy could cover up to $20,000. Consider travel insurance for more comprehensive cover for your belongings while traveling. Also, be aware of the security requirements; leaving a laptop visible in a car might void your claim.
Myth 7: Flood Damage Is Always Covered
Flood cover in New Zealand is complex and varies significantly between insurers. Some policies offer comprehensive flood cover, while others have limited cover or exclude flood damage entirely. The availability and extent of flood cover often depend on the location of your property and its risk of flooding. If you live in a flood-prone area, it’s crucial to understand the specific flood cover offered by your policy. Some policies may require you to take specific measures to mitigate flood risk, such as installing flood barriers, to be eligible for cover. In some instances, accessing flood insurance can be challenging or costly for residents in high-risk zones. You may need to explore specialist insurance providers. Contact your local council to understand the flood risk in your area. The Parliamentary Commissioner for the Environment has published reports on the increasing risks from climate change including extreme weather events, which may affect your insurance premiums.
Myth 8: I Don’t Need to Read the Fine Print
This is perhaps the most dangerous myth of all. The fine print contains critical information about your policy, including what’s covered, what’s excluded, the limits of cover, and the claim process. Failing to read and understand the fine print can lead to unpleasant surprises when you need to make a claim. Pay close attention to the exclusions, which are events or circumstances that are not covered by the policy. For example, many policies exclude damage caused by gradual deterioration or lack of maintenance. Understand the conditions of the policy, such as the requirement to take reasonable steps to prevent loss or damage. If you’re unsure about anything, ask your insurer to explain it in plain language. Consider seeking advice from an insurance advisor or broker to help you understand your policy and identify any potential gaps in coverage.
Myth 9: Upgrading a Kitchen Or Bathroom Does Not Affect Insurance
Substantial renovations, like kitchen or bathroom upgrades, increase the value of your property and, consequently, the replacement cost. Failing to update your sum insured after renovations could leave you underinsured if your home is damaged or destroyed. The cost to replace a brand-new, high-end kitchen is significantly higher than replacing an old one. Inform your insurer about any significant renovations you undertake. They may need to reassess your sum insured to ensure you adequate protection. Obtain a professional valuation after the renovations to determine the new replacement cost. Keep records of all renovation costs, including materials and labor, as this can be helpful in the event of a claim. Ignoring the impact of renovations on your insurance can result in a significant financial shortfall if you need to rebuild.
Myth 10: Making a Claim Always Increases My Premium
While making a claim can sometimes lead to an increase in your premium, this isn’t always the case. The impact of a claim on your premium depends on several factors, including the severity of the damage, the frequency of claims, and the terms of your policy. Minor claims might not affect your premium, while significant claims are more likely to result in an increase. Some insurers offer a “no claims bonus,” which rewards policyholders who haven’t made any claims for a certain period. Understand the claims history policy before signing up. It’s wise to compare quotes from different insurers after making a claim to ensure you’re still getting the best deal. Sometimes, switching insurers can result in a lower premium, even after factoring in the claim. Be transparent with potential insurers about your claims history and ask about their claims surcharge policies.
Myth 11: Insurance Pays for General Wear and Tear or Poor Maintenance
Property insurance is designed to protect you from sudden and accidental events, not from the consequences of neglecting your home. Damage resulting from general wear and tear, poor maintenance, or gradual deterioration is typically excluded from coverage. For example, if a leaky pipe has been slowly dripping for months causing rot, your insurer will argue the damage stems from poor maintenance and is not covered. Regular maintenance is essential to prevent costly repairs and ensure your property remains insurable. Keep your gutters clean, repair leaks promptly, and address any structural issues as soon as they arise. Document your maintenance efforts, as this can be helpful in the event of a claim. The Consumer Building Guide provides homeowners with guidance on building maintenance for weather-tightness, highlighting the importance of regular upkeep.
Myth 12: You Can Shop Around for Cheaper Premiums After a Disaster
Following a widely publicized disaster, some people think they can quickly change the insurance company for cheaper premiums. However, it’s not that straightforward. Insurers share claim information. They often increase premiums or impose special terms across the board in high-risk areas. Changing insurers after a disaster may reveal that other insurance companies are less likely to cover you for similar risks, or they will charge you a higher price. It’s better to shop around periodically and compare insurance rates to ensure you get the best value for your needs before a disaster strikes.
Myth 13: You Must Accept the Insurer’s Initial Offer on a Claim
You typically negotiate with the insurer’s adjuster. An initial offer might not fully account for all losses or damages. You have the right to present additional information, obtain independent assessments, and negotiate a fair settlement. It’s often a good idea to document everything—photographs, invoices, valuations—and back up your counter-claims. If you are unhappy with the process, use the insurer’s dispute process before seeking external help. Remember to act in good faith and cooperate with your insurance company during the claims process. There are also independent organizations and advocacy groups that can assist you in navigating insurance disputes and ensuring your rights are protected.
Myth 14: All Rental Properties Need the Same Type of Insurance
Insurance for rental properties has unique features compared to standard homeowners’ insurance. Landlord insurance typically covers the building itself, any contents you own within the property (such as appliances), and loss of rental income if the property becomes uninhabitable due to an insured event. Tenants are responsible for insuring their own belongings. Landlords should ensure they understand the specific coverages and exclusions in their landlord insurance policy, including liability coverage for injuries to tenants or visitors on the property. Consider adding rent guarantee insurance, which protects against loss of rental income if tenants default on their payments. Communicate clearly with tenants about their responsibility to obtain contents insurance and document this in the tenancy agreement. Having comprehensive insurance coverage for rental properties protects your investment and provides peace of mind. The Tenancy Services website provides valuable information for both landlords and tenants regarding their rights and responsibilities.
Myth 15: If I Have Insurance, I Don’t Need an Emergency Fund
Insurance is crucial for covering large, unexpected losses, but it shouldn’t be considered a substitute for an emergency fund. Insurance policies typically have deductibles, which are the amounts you must pay out of pocket before your insurance coverage kicks in. An emergency fund can help you cover these deductibles and any other unexpected expenses that may arise. Furthermore, there may be delays in receiving insurance payouts, and an emergency fund can provide you with the financial resources you need to cover immediate expenses. Maintaining both comprehensive insurance coverage and a healthy emergency fund provides you with a well-rounded financial safety net. Aim to save at least three to six months’ worth of living expenses in an easily accessible emergency fund.
FAQ Section
Here are some commonly asked questions about property insurance in New Zealand:
What is the difference between replacement value and indemnity value?
Replacement value covers the cost of replacing damaged or destroyed items with new, equivalent items, regardless of depreciation. Indemnity value, on the other hand, accounts for depreciation, meaning you’ll only receive the current market value of the item, which may be less than the cost of replacing it.
How can I determine the correct sum insured for my home?
The best way to determine the correct sum insured is to obtain a professional valuation from a qualified valuer. This will provide you with an accurate estimate of the cost to rebuild your home to its original standard. You can also use online building cost calculators as a starting point but always consult with an expert.
What is an excess, and how does it affect my premium?
The excess is the amount you must pay out of pocket when making a claim. Generally, a higher excess will result in a lower premium, while a lower excess will result in a higher premium. Choosing the right excess depends on your individual circumstances and risk tolerance.
What should I do if my insurance claim is denied?
If your insurance claim is denied, carefully review the denial letter to understand the reasons for the denial. Gather any additional information or documentation that supports your claim and appeal the decision. If you’re still not satisfied with the outcome, you can contact the Insurance & Financial Services Ombudsman Scheme (IFSO) for assistance.
How often should I review my insurance policy?
It’s recommended to review your insurance policy at least once a year and whenever there are significant changes to your circumstances, such as renovations, purchases of high-value items, or changes in your risk profile. This will ensure that your policy remains adequate and meets your needs.
What is EQC cover, and how does it differ from private house insurance?
EQC (Earthquake Commission) provides natural disaster cover for residential properties in New Zealand, including earthquakes, landslips, volcanic eruptions, hydrothermal activity, and tsunami. EQC cover is limited to certain types of damage and up to a certain value. Private house insurance covers a broader range of risks, such as fire, flood, and theft, and provides cover above EQC limits.
Am I required to disclose previous claims when seeking insurance?
Yes, you are generally required to disclose any previous claims when applying for insurance. Failure to disclose previous claims can invalidate your policy. Insurers use claims history to assess your risk profile and determine your premium.
How does living in a high-risk area affect my insurance premiums and coverage options?
Living in a high-risk area, such as a flood-prone or earthquake-prone zone, can significantly impact your insurance premiums and coverage options. Insurers may charge higher premiums, impose special terms, or even decline to offer cover in certain high-risk areas. It’s crucial to understand the risks associated with your location and choose a policy that provides adequate protection.
Can I cancel my insurance policy if I’m unhappy with the service or price?
Yes, you generally have the right to cancel your insurance policy at any time. However, you may be subject to cancellation fees or penalties. Check your policy wording for details on cancellation procedures and fees. If you’re cancelling your policy, be sure to arrange alternative coverage to avoid being uninsured.
References
- Earthquake Commission (EQC)
- Consumer Building Guide
- Tenancy Services
- Insurance & Financial Services Ombudsman Scheme (IFSO)
- Parliamentary Commissioner for the Environment
Don’t leave your property vulnerable to financial risk. Take control of your insurance by understanding your needs, comparing policies, and seeking professional advice. Protect your investment and your peace of mind. Contact an insurance advisor today to review your current coverage or get a quote.
