Changes to home insurance policies

Property

For most homeowners in New Zealand, their home insurance has always been an unspecified "replacement‟ cost based on the floor area of their home. However, following the Christchurch earthquakes, insurers are now adopting a new home insurance policy whereby all home insurance policies will be based on an “insured sum‟.

The policy change is a result of major reinsurers (the insurance companies who insure our local insurance companies) requiring greater clarity on risk and the maximum costs to rebuild the homes they insure. Many insurers claim that the changes are about providing certainty and managing affordability for homeowners, and that costs of premiums for home owners will not change. The result is that the onus is now on homeowners to get their home valued correctly as the insured sum will be the maximum amount the insurers will cover in the event of a claim.

The Insurance Council of New Zealand and the majority of insurance companies have published information online, and provided fact sheets and valuation calculators to inform homeowners and assist them to calculate the insured sum for their home.

In order to determine the sum to be insured, homeowners must determine the cost of completely rebuilding their home. Accordingly, it is paramount for homeowners to be aware of the unique features of their home. These include:

  • Structural features (floor area, number and types of rooms and levels, the style and standard of construction of the home, the material used to build the home).
  • Exterior structures associated with the home (decking, paving, driveway, garage), recreational features (swimming pools, tennis courts), 
  • The slope of the land the home is built on and whether there are retaining walls, and additional special features near the home (bridges, dams, private wharfs).

The insured sum does not include the value of the land on which the home is situated, or what it would cost to buy your home. Therefore the purchase price, rates valuation, or other estimate cannot be relied upon to determine the home’s value or insured sum.

In addition to calculating the value of the sum insured, each year homeowners must also determine the adequacy of the sum insured and keep their insurers updated upon renewal of their insurance policy. This is crucial for homeowners who complete renovations or changes to their home to guarantee that those works (and the possible increase in value) are covered by their insurance policy.

Obviously, this is a significant change to the duties of the insurer, and shifts the onus to the homeowner to correctly value their home and the insured sum. Homeowners need to be proactive, as many insurers have already transitioned all new home insurance policies to the “sum insured‟ base, and all existing policies are likely to change at the time of renewal. One of the main consequences for homeowners, if they fail to adhere to the new policy, is that a default sum for the home will be calculated by the insurers which may not reflect its true value or the costs likely to be incurred in replacing the home.

For most people their home is their most valuable possession, consequently homeowners need to be aware of the terms of their insurance policy, and be proactive in contacting their insurer to ensure their home is adequately protected. If you have any queries regarding your home insurance policy you should contact your insurer immediately. If you have any issues regarding insurance claims it is prudent to obtain legal advice.

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