Property insurance in New Zealand is a crucial financial safety net, but it’s not a magic wand that covers everything. Understanding policy exclusions – those specific events or circumstances your insurance won’t pay for – is just as important as knowing what is covered. This knowledge empowers you to make informed decisions about managing risk and securing adequate protection for your home and belongings.
Understanding the Core Concept of Exclusions
Think of your insurance policy as a contract. It spells out exactly what the insurer agrees to cover, and equally importantly, what they don’t agree to cover. These “don’ts” are the exclusions. They exist for various reasons, often because the risks are too high, too difficult to quantify, or more appropriately managed through other means (like regular maintenance). Broadly, exclusions aim to maintain affordable premiums for the majority of policyholders by excluding events that would significantly increase the insurer’s overall risk exposure. It is vital that you read your policy document carefully, paying particular attention to the sections outlining these exclusions, as different insurance companies may have different terms, conditions, and exclusions.
Common Property Insurance Exclusions in New Zealand
While specific wording varies between insurers, some exclusions are commonly found in most New Zealand property insurance policies. Let’s examine these in detail:
Wear and Tear and Lack of Maintenance
One of the most frequent points of contention revolves around wear and tear. Insurance is designed to cover sudden and accidental damage, not the gradual deterioration that occurs over time. For example, a leaky roof caused by years of neglect and lack of maintenance won’t be covered. Similarly, rot or corrosion that has developed gradually is typically excluded. This underscores the importance of regular home maintenance. Ignoring minor issues can lead to major problems down the line, not only physically but also financially, as your insurance claim might be denied.
Actionable Tip: Create a home maintenance checklist and stick to it. Regularly inspect your roof, gutters, plumbing, and other critical areas to identify and address potential problems early. Keep records of your maintenance activities, including receipts for repairs and inspections. This documentation can be invaluable if you ever need to demonstrate that you’ve taken reasonable care of your property.
Earthquake Damage (Specific Scenarios)
New Zealand is earthquake-prone, so understanding how your insurance handles earthquake damage is paramount. Most property insurance policies in NZ do cover earthquake damage, but the amount is usually limited to the coverage that the Earthquake Commission (EQC) does not cover. EQC provides natural disaster insurance for residential properties, covering damage from earthquakes, landslips, volcanic eruptions, hydrothermal activity, and tsunamis. The EQC Act sets limits for land and building damage.
Important Note: The specifics surrounding earthquake coverage can vary depending on your policy and insurer’s interpretation of EQC’s role. It’s essential to understand where the EQC cover ends and your private insurance cover begins. For example, if your land is damaged by an earthquake, EQC might cover the repair cost up to its cap. If the repair cost exceeds this cap and your policy includes full replacement cover, your private insurer might cover the excess up to the policy limits, provided that the repair is deemed necessary to allow you to live in your home.
Actionable Tip: Study the EQC website https://www.eqc.govt.nz/ to understand what they cover. Review your insurance policy for earthquake exclusions and excesses carefully, and ask your insurer to clarify any uncertainties. Consider the potential for land damage and whether your insurance provides adequate coverage beyond EQC’s limits.
Flood Damage (Specific Scenarios)
Flood coverage can be complex. While many NZ property insurance policies cover some form of flood damage, certain types of flooding are often excluded. For example, flooding caused by coastal erosion, rising sea levels, or overflowing rivers and streams might not be covered. In some policies, if flood damage is the result of faulty workmanship or design during construction, it can also be excluded.
Often, property insurance policies require that there is a specific event, such as a storm causing the flood, for there to be coverage. This means gradual flooding problems may not be covered. Coastal properties will typically have higher premiums and more stringent exclusions relating to inundation from the sea. It’s vital to understand exactly what kind of flood events are covered by your particular policy.
Actionable Tip: Determine your property’s flood risk. Consult your local council or regional authority for flood maps and historical flood data. Check if your property is located in a designated flood zone. Consider flood mitigation measures, such as installing flood barriers or improving drainage. When reviewing your policy, pay close attention to the definition of “flood” and the exclusions related to flooding. Discuss any concerns with your insurer.
Gradual Damage and Inherent Defects
Similar to wear and tear, damage that occurs slowly over time or results from inherent defects is generally excluded. This includes things like rising damp, wood rot caused by inadequate ventilation, or structural problems due to faulty construction. The underlying principle is that insurance is not a substitute for proper building practices or ongoing maintenance.
For example, if your house was built with substandard materials or improper construction techniques, any resulting damage may be excluded. The onus is on you to ensure the property is sound and well-maintained, or to seek recourse from the builders or contractors responsible for the defects.
Actionable Tip: Obtain a thorough building inspection report before purchasing a property. This will help identify any existing or potential structural issues. Address any identified defects promptly. When undertaking renovations or repairs, use qualified and reputable tradespeople.
Deliberate or Intentional Acts
Damage caused by deliberate or intentional acts by you or anyone residing at your property is almost always excluded. This includes acts of vandalism, arson, or malicious damage. Similarly, if you are found to be engaging in illegal activities on your property, any resulting damage may not be covered.
This exclusion is fairly straightforward, but it’s important to note that it can extend to situations where you are found to be grossly negligent or reckless. For example, if you leave flammable materials unattended near a heat source, and a fire breaks out, your insurer may deny your claim on the grounds that you acted with gross negligence.
Actionable Tip: Take reasonable precautions to prevent damage to your property. Secure your home against burglary and vandalism. Supervise children and pets to prevent accidental damage. Store flammable materials safely. Act responsibly and avoid engaging in risky behavior that could lead to damage.
Unoccupied Property (Depending on Policy Terms)
Many insurance policies have clauses that restrict or exclude coverage if your property is left unoccupied for an extended period – typically 60 days or more, but check your specific policy. The rationale behind this exclusion is that unoccupied properties are more vulnerable to damage from vandalism, theft, or undetected problems like burst pipes. Prolonged periods of unoccupancy can lead to greater damage if defects are left unnoticed for a longer time.
Actionable Tip: If you plan to leave your property unoccupied for an extended period, notify your insurer. They may require you to take certain precautions, such as turning off the water supply or arranging for someone to check on the property regularly. Consider hiring a house sitter or asking a neighbor to keep an eye on your property while you’re away. Some policies may require you to pay an additional premium for unoccupied property coverage.
Business Use of Property
Standard home or property insurance policies are usually designed for residential purposes. If you conduct a business from your home, and this business activity is the cause of the loss or damage, your standard property insurance is unlikely to provide cover. A small home office unlikely to cause problems, but running an automotive services or woodworking business would likely require a commercial policy to ensure you have appropriate coverage
Actionable Tip: If you operate a business from your home, inform your insurer. They may require you to take out a separate business insurance policy or add a rider to your existing policy to cover business-related risks.
Pest Infestation (Termites, Rats, Etc.)
Damage caused by pests like termites, rats, or other vermin is generally excluded from property insurance policies. The reasoning is that pest infestations are often preventable through proper maintenance and pest control measures. While some extremely limited policies might cover secondary damage caused by pests (like a burst pipe caused by rats chewing through it), the underlying infestation itself and the direct damage it causes won’t be covered.
Actionable Tip: Implement a regular pest control program. Seal any cracks or openings in your home’s foundation and walls. Store food properly to prevent attracting pests. Remove any potential breeding grounds for pests, such as standing water or overgrown vegetation. Regularly check for signs of pest infestation, such as droppings, gnaw marks, or damaged wood.
Exclusions Related to Specific Items
Pay close attention to any exclusions concerning specific items. For instance, some policies might limit coverage for high-value items like jewelry, art, or collectibles. You may be required to list these items separately in your policy or purchase additional coverage to ensure they’re adequately protected.
Actionable Tip: Review your policy for any exclusions or limitations on specific items. Get your high-value items appraised and ensure they’re properly insured. Consider purchasing a separate floater policy for valuable collectibles.
Understanding Policy Excesses
Closely related to exclusions is the concept of excesses. The excess is the amount you have to pay out of pocket before your insurance coverage kicks in. Policies with lower premiums generally have higher excesses, and policies with higher premiums tend to have much lower excesses. You may have the option to increase the excess to lower your premium payments, but it is important to do the math and make sure you can cover the costs of a higher excess if something happens.
It’s crucial to understand your excess amount and how it affects your affordability of insurance. A very low premium might sound appealing, but if the excess is too high for you to comfortably pay, you may not be able to make a claim when you need to.
Case Studies: Learning from Real-World Examples
Let’s look at some hypothetical scenarios to illustrate how exclusions can play out in real life:
Case Study 1: The Neglected Roof. A homeowner notices a small leak in their roof. They ignore it, assuming it’s just a minor issue. Over time, the leak worsens, causing significant water damage to the ceiling and walls. When they finally file a claim, the insurance company denies it, citing the exclusion for wear and tear and lack of maintenance. The homeowner is left to pay for the repairs out of pocket.
Case Study 2: The Business from Home. A person runs an automotive repair business out of thier home garage. Unfortunately the garage catches fire due to a fault in the engine he was working on. The garage is significantly damaged, as is a large number of automotive parts and tools. The insurance company determines that the fire started directly from running an at-home business and the homeowner is not covered.
Case Study 3: The Burst Pipe While on Holiday. A family is on a 3 month long vacation over the winter. While they are gone, a water pipe freezes due to the cold and bursts. Because the home was unoccupied for 90 days and the insurance policy only covers up to 60 days of unoccupancy, the home owner may not be covered for damage caused by the burst pipe.
Reviewing and Updating Your Policy
Your insurance needs can change over time. As your circumstances evolve, it’s essential to review your policy periodically and make any necessary adjustments. The key to ensuring that you are covered for damage is to keep your policy updated. For example, if you purchase expensive artwork for your home, you may want to contact your insurance company and make sure this artwork is appropriately insured by a rider on the policy.
Actionable Tip: Schedule an annual review of your insurance policy with your insurer or broker. Discuss any changes in your circumstances, such as home renovations, new acquisitions, or changes in household members. Ensure your policy limits are adequate to cover the full replacement cost of your home and contents.
Getting Clarification from Your Insurer
If you’re unsure about any aspect of your insurance policy, don’t hesitate to seek clarification from your insurer or broker. They can explain the policy terms and conditions in plain language and answer any questions you have. Get everything in writing, so you have a record of the communication. This will prove beneficial if any issues arise with the policy in the future.
Actionable Tip: Keep a record of all communication with your insurer, including emails, letters, and phone calls. If you receive conflicting information, request clarification in writing. Seek professional advice from an insurance broker if you need help understanding complex policy terms.
Dispute Resolution Process
If you have a disagreement with your insurer, there are established dispute resolution processes available in New Zealand to help you reach a fair outcome. First, try to resolve the issue directly with your insurer. If that’s unsuccessful, you can escalate the matter to the Insurance & Financial Services Ombudsman (IFSO) or the Financial Dispute Resolution Service (FDRS). These independent bodies provide free and impartial dispute resolution services for insurance-related complaints.
FAQ Section
What happens if I disagree with my insurer’s decision on a claim?
If you disagree with your insurer’s decision, you can first attempt to resolve the issue directly with them. If you’re not satisfied with their response, you can escalate the matter to the Insurance & Financial Services Ombudsman (IFSO) or the Financial Dispute Resolution Service (FDRS). These independent bodies provide free and impartial dispute resolution services.
How often should I review my property insurance policy?
Ideally, you should review your property insurance policy at least once a year, or whenever there are significant changes to your circumstances, such as home renovations, new acquisitions, or changes in household members. Regular reviews ensure that you have adequate coverage and that your policy reflects your current needs.
What’s the difference between an exclusion and an excess?
An exclusion is a specific event or circumstance that your insurance policy won’t cover. An excess is the amount you have to pay out of pocket before your insurance coverage kicks in.
Are claims involving pre-existing property damage covered under insurance?
Generally, property insurance policies do not cover pre-existing damage. Insurance is designed to cover unforeseen and accidental events, not conditions that already existed before the policy was in effect. In the event of pre-existing damage, your claim is likely to be denied.
If a natural disaster causes damage, does property insurance cover temporary accommodation?
Many property insurance policies do provide coverage for temporary accommodation if your home becomes uninhabitable due to a natural disaster that would be covered under the policy. However, the extent of this coverage varies depending on the policy terms and conditions, so it’s wise to check the policy document.
Where can I find my insurance policy?
Your insurance policy documentation would have been given to you by your insurer once you purchased the coverage. If you have lost the documents, you can contact your insurer and ask them to provide you with copies, either digital or on paper.
What should I do immediately after my property has been damaged?
Report the damage to the insurance provider with reasonable speed. Immediately undertake measures to reduce the amount of damage, such as putting a tarp over a hole in the roof, or using a wet/dry vacuum to suck up water.
References
Earthquake Commission (EQC) Act
Insurance & Financial Services Ombudsman (IFSO)
Financial Dispute Resolution Service (FDRS)
Don’t let uncertainty cloud your peace of mind. Take control of your property insurance coverage today. Review your policy, understand the exclusions, and address any gaps in coverage. Consult with your insurer or broker to ensure you have the right protection for your specific needs. Secure your home, secure your future.
