Navigating the world of insurance can feel like deciphering a foreign language. This guide will break down the common jargon in New Zealand property insurance policies, arming you with the knowledge to understand your coverage and make informed decisions.
Decoding Common Insurance Terms
Let’s tackle some of the most frequently encountered terms in New Zealand property insurance policies. Understanding these will empower you to compare policies effectively and ensure you have the appropriate level of cover for your home.
Sum Insured vs. Market Value
One of the most crucial distinctions to grasp is the difference between sum insured and market value. The sum insured is the maximum amount your insurer will pay to rebuild your home if it’s completely destroyed or needs substantial repairs. This figure should reflect the rebuilding cost, not the price you could sell your property for (market value). The market value includes the land, which isn’t relevant when determining rebuilding costs. Choosing an accurate sum insured is vital. If you underestimate, you risk being underinsured and having to cover a significant portion of the rebuild yourself. The Cordell Sum Sure calculator (CoreLogic NZ) is a handy tool to help estimate rebuilding costs.
For example, imagine your house has a market value of $800,000, but the cost to rebuild it is $600,000. If you insure it for $500,000 and it’s completely destroyed by a fire, you’ll be $100,000 short, even though you thought you had sufficient coverage. It’s better to err on the side of caution and slightly overestimate your rebuilding costs, considering factors like inflation and potential construction delays.
Excess
The excess is the amount you pay out-of-pocket when you make a claim. It’s essentially your contribution towards the repair or replacement. Generally, a higher excess leads to a lower premium (the regular payment you make for your insurance), and vice versa. Choosing the right excess involves balancing affordability with the risk of having to pay a larger sum in the event of a claim. Think carefully about what you can comfortably afford if something goes wrong. Some insurers offer different excess options for different types of claims, such as a lower excess for glass breakage.
Let’s say you have an excess of $500 and your washing machine floods your kitchen, causing $3,000 worth of damage. You’ll pay the first $500, and your insurance company will cover the remaining $2,500. However, if the damage is only $400, it’s not worth making a claim because you’ll have to pay the full amount yourself.
Policy Wording
Policy wording refers to the detailed document outlining the terms and conditions of your insurance policy. It describes what’s covered, what’s excluded, and the procedures for making a claim. While it might be tempting to skip reading it entirely, understanding your policy wording is crucial to avoid unpleasant surprises later. Pay close attention to the exclusions, which specify situations or events that aren’t covered by your policy (we’ll delve into exclusions further below).
Insurance companies are legally obliged to provide clear and easily understandable policy wording. If you find the language confusing, don’t hesitate to contact your insurer and ask for clarification.
Replacement vs. Indemnity Value
When it comes to replacing damaged or lost items, there are two main ways insurers calculate the payout: replacement value and indemnity value. Replacement value means the insurer will cover the cost of replacing the item with a new one of similar type and quality. Indemnity value, on the other hand, takes depreciation into account. This means you’ll receive the current market value of the item, considering its age and wear and tear. Replacement value is generally more beneficial for you, as it allows you to replace the item with a brand new one without having to contribute extra funds.
For example, if your 5-year-old television is stolen and your policy covers replacement value, the insurer will pay for a new television of similar specs. If your policy covers indemnity value, the insurer will only pay the estimated current value of your 5-year-old television, which will be significantly less than the price of a new one.
Natural Disaster Cover
New Zealand is prone to earthquakes, floods, and other natural disasters. Natural disaster cover, often provided by the Earthquake Commission (EQC) and your private insurer, is essential for protecting your property against these events. EQC provides cover for residential buildings and some land damage caused by earthquakes, landslips, volcanic eruptions, hydrothermal activity, and tsunamis. The EQC’s coverage amount is capped; for details, see EQC’s official website. Your private insurer then covers the remaining costs up to your sum insured.
It’s crucial to understand the limits of EQC cover and ensure your private insurance policy adequately covers the difference. Be aware of any specific exclusions related to natural disasters, such as damage caused by coastal erosion or rising sea levels. Statistics from the EQC indicate that the most common claims are related to land damage following significant earthquake events.
Contents Insurance
Alongside building insurance, contents insurance protects your belongings inside your home, such as furniture, electronics, clothing, and appliances. Like building insurance, you’ll need to determine an appropriate sum insured for your contents, representing the total cost of replacing all your belongings if they were lost or destroyed. Consider conducting a room-by-room inventory and estimating the replacement value of each item to arrive at a realistic figure. Many insurers offer online tools to help you with this process.
A common mistake is underestimating the value of your contents. You might be surprised at how quickly the cost adds up. Don’t forget to include items in your garage, shed, and even your garden (e.g., outdoor furniture, barbecue). Also, consider specifying valuable items like jewelry, artwork, or antiques separately, as they may have limitations under standard contents insurance.
Understanding Exclusions
Exclusions are the specific situations or events your insurance policy won’t cover. These are clearly outlined in your policy wording, usually listed within the exclusion section. It’s critically important to know these exclusions to avoid surprises when filing a claim.
Lack of Maintenance
Damage resulting from lack of maintenance is a common exclusion. This means your insurer won’t cover damage caused by neglecting necessary repairs or failing to maintain your property in good condition. Examples include a leaky roof that’s been ignored for years, causing significant water damage, or rot due to unpainted weatherboards. To avoid this, regularly inspect your property for any signs of wear and tear and address them promptly.
Case Study: A homeowner had a claim rejected because their deck collapsed due to wood rot. The insurer argued that the rot was a result of long-term neglect and failure to properly maintain the deck. Had the homeowner regularly treated and sealed the deck, the rot, and subsequent collapse, could have been prevented.
Pre-Existing Conditions
Pre-existing conditions, meaning damages or issues that existed before you took out the policy, are generally excluded. This is why it’s essential to disclose any known problems with your property when applying for insurance. If you’re aware of a cracked foundation or a history of water leaks, be upfront with your insurer. Failure to disclose pre-existing conditions could invalidate your policy.
Example: If you discover a slow leak in your bathroom a month after taking out insurance, and the leak has clearly been ongoing for several months prior, the insurer might reject your claim, arguing it’s a pre-existing condition.
Gradual Damage
Gradual damage, meaning damage that occurs slowly over time, is often excluded. This differs from sudden and accidental damage, which is usually covered. For instance, slow water damage from a dripping pipe over several months might be excluded, whereas a burst pipe causing immediate flooding would likely be covered.
Tip: Be vigilant about checking for signs of gradual damage like damp patches, mold growth, or musty odors. Addressing these issues early can prevent them from escalating and potentially leading to uncovered damage.
Faulty Workmanship
Damage caused by faulty workmanship is another common exclusion. If you hire a contractor to do work on your property, and their poor workmanship results in damage, your insurance policy usually won’t cover it. This is why it’s crucial to choose reputable and qualified tradespeople and ensure they have their own liability insurance. Check reviews and references before hiring anyone to work on your home.
Scenario: You hire an electrician to rewire your house, and their faulty wiring causes a fire. Your insurance policy may not cover the damage caused by the fire if it can be proven that it was a direct result of the electrician’s negligence. You would then need to pursue a claim against the electrician’s liability insurance.
Unoccupied Property
Some policies have limitations or exclusions if your property is unoccupied for an extended period. Most policies specify a maximum number of consecutive days a property can be vacant before cover is affected. If you’re planning an extended holiday or if your property is vacant for other reasons (e.g., awaiting tenants), inform your insurer. You may need to take specific security precautions, such as turning off the water supply or having someone check on the property regularly, to maintain coverage.
Real-world example: A homeowner went overseas for three months without notifying their insurer. During their absence, a pipe burst, causing significant water damage. Because the property was unoccupied for longer than the policy allowed, the insurer rejected the claim.
Tips for Choosing the Right Policy
Selecting the right property insurance policy requires careful consideration and comparison. Here are some practical tips to guide you through the process.
Compare Quotes from Multiple Insurers
Don’t settle for the first quote you receive. Get quotes from several different insurers and compare their premiums, coverage levels, excesses, and exclusions. Online comparison websites can be a useful starting point, but always verify the information directly with the insurer before making a decision. Look beyond just the price and carefully evaluate the policy wording and the insurer’s reputation for claims handling.
When comparing quotes, make sure you’re comparing apples to apples. Ensure all quotes have the same sum insured, excess, and coverage features. A slightly cheaper premium might come with significantly lower coverage or higher excess, making it a poor value in the long run.
Review Your Policy Annually
Your insurance needs can change over time. Review your policy annually to ensure it still meets your requirements. Have you made any renovations or improvements to your home? Has the value of your contents increased? Have you acquired any valuable items that need to be specified separately? Keeping your policy up-to-date ensures you have adequate coverage should the unexpected happen.
Furthermore, regularly check your sum insured against current rebuilding costs using tools like the Cordell Sum Sure calculator. Construction costs can fluctuate due to factors like inflation and supply chain disruptions, so it’s important to adjust your coverage accordingly.
Understand Your Obligations
As a policyholder, you have certain obligations to your insurer. These typically include taking reasonable steps to prevent loss or damage, maintaining your property in good condition, and promptly reporting any incidents that could lead to a claim. Failure to comply with these obligations could jeopardize your coverage.
For example, if you notice a small leak, you’re obligated to take steps to repair it promptly. Ignoring it and allowing it to worsen could be considered a breach of your obligations and could lead to a rejected claim.
Ask Questions and Seek Clarification
If you’re unsure about any aspect of your insurance policy, don’t hesitate to ask your insurer for clarification. They should be able to explain the policy wording, confirm coverage details, and answer any questions you have. It’s better to clarify any doubts upfront than to discover a gap in your coverage when you need to make a claim. Document all communication with your insurer, including the date, time, and the name of the person you spoke with.
Feel free to request examples of how specific scenarios would be handled under your policy. For instance, you could ask how a claim for water damage resulting from a burst pipe would be processed, or what the process is for claiming for stolen jewelry.
Consider Additional Coverage Options
In addition to standard building and contents insurance, consider whether you need any additional coverage options. These might include landlord insurance (if you rent out your property), mortgage protection insurance (to cover your mortgage repayments if you’re unable to work due to illness or injury), or legal liability cover (to protect you against legal claims arising from incidents on your property).
Some policies also offer optional extras, such as increased cover for valuables, cover for alternative accommodation if your home is uninhabitable due to damage, or cover for plants and trees in your garden.
Making a Claim: A Step-by-Step Guide
Knowing what to do when you need to make a claim can significantly streamline the process. Here’s a step-by-step guide:
- Report the Incident Promptly: Contact your insurer as soon as possible after the incident occurs. Most policies have a time limit for reporting claims, so don’t delay.
- Take Photos and Document the Damage: Before making any repairs, take photos and videos of the damage. This will provide valuable evidence for your claim. Keep copies of any receipts or invoices for repairs, replacements, or temporary accommodation.
- Prevent Further Damage: Take reasonable steps to prevent further damage from occurring. For example, if a window is broken, cover it with plastic sheeting to prevent rain from entering.
- Complete the Claim Form Accurately: Fill out the claim form thoroughly and accurately. Provide all the requested information, including the date, time, and cause of the incident, as well as a detailed description of the damage.
- Cooperate with the Insurer: Cooperate fully with the insurer’s investigation of your claim. They may need to inspect the damage, interview you, or request additional information.
- Keep Records of All Communication: Keep a record of all communication with the insurer, including emails, letters, and phone calls. Note the date, time, and subject of each communication.
If your claim is rejected, you have the right to appeal the decision. Contact your insurer and request a written explanation of the reasons for the rejection. If you’re still dissatisfied, you can lodge a complaint with the Insurance & Financial Services Ombudsman Scheme (IFSO), an independent dispute resolution service.
Frequently Asked Questions
Here are some frequently asked questions about New Zealand property insurance:
What is the difference between ‘accidental damage’ and ‘intentional damage’?
Accidental damage refers to damage that is unintentional and unforeseen, such as accidentally knocking over a vase and breaking it. Intentional damage, on the other hand, is damage that is deliberately caused, such as vandalizing your own property. Insurance policies typically cover accidental damage but exclude intentional damage.
Am I covered for water damage caused by a burst pipe?
Generally, yes, most property insurance policies cover water damage caused by a sudden and accidental burst pipe. However, it’s important to check your policy wording for any specific exclusions. Damage caused by gradual leaks or lack of maintenance may not be covered.
What happens if I’m underinsured?
If you’re underinsured, it means your sum insured is not enough to cover the full cost of rebuilding your home or replacing your belongings. In this situation, the insurer may only pay a portion of the claim, leaving you to pay the remaining costs out of pocket. This is why it’s crucial to ensure your sum insured is adequate.
Does my insurance cover the cost of alternative accommodation if my home is uninhabitable?
Many policies include cover for alternative accommodation if your home is uninhabitable due to an insured event, such as a fire or earthquake. However, the level of cover may be limited to a certain amount or period of time. Check your policy wording for details.
What is ‘unspecified contents’ cover?
Unspecified contents cover refers to the standard cover for your general belongings, such as furniture, clothing, and appliances, without listing each item individually. Most policies have a limit on the maximum amount you can claim for any single item under unspecified contents cover. For valuable items, it’s usually best to specify them separately.
Is legal liability cover necessary?
Legal liability cover protects you against legal claims arising from accidents or injuries that occur on your property. For example, if someone slips and falls on your property and suffers an injury, they could sue you for damages. Legal liability cover can help cover the legal costs and compensation you may be required to pay. While not mandatory, it’s a worthwhile consideration for most homeowners.
How does EQC cover work with my private insurance?
In the event of an earthquake, volcanic eruption, hydrothermal activity, tsunami, or landslip, the EQC provides cover for residential buildings and some land. If the damage exceeds the EQC’s cap, your private insurer then covers the remaining costs up to your sum insured. It is best to confirm with both EQC and your private insurer on the coverage of your insurance.
What discounts are available on home insurance?
Many insurers offer discounts for various reasons, such as having a home alarm system, being a member of a particular organization, or bundling your home and contents insurance with the same provider. Ask your insurer about available discounts.
References
- Earthquake Commission (EQC) website
- Insurance & Financial Services Ombudsman Scheme (IFSO) website
- CoreLogic NZ Cordell Sum Sure Calculator
Don’t leave your property’s protection to chance. Now that you’re armed with a better understanding of insurance jargon and policy intricacies, take proactive steps. Review your current policy, compare quotes from multiple insurers, and ask questions to ensure you have the right coverage for your unique needs. Protect your home and your future with confidence.
