WHAT YOU NEED TO KNOW AND DO ABOUT CHANGES TO YOUR HOME INSURANCE
For most homeowners in New Zealand, home insurance has always been an unspecified ‘replacement’ cost based on the floor area of their home. 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 result is that the onus is now on you to get your home valued correctly as the specified 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 with calculating the insured sum.
In order to determine the sum to be insured, you must determine the cost of completely rebuilding your home. It is paramount that you are aware of the unique features of your 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, spa 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 your 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 you must also determine the adequacy of the sum insured and keep your insurers updated upon renewal of your insurance policy. This is critical if you complete renovations or changes to your home to guarantee that those works (and the possible increase in value) are covered by your insurance policy.
This is a significant change to the duties of the insurer, and shifts the onus on you to correctly value your home and the insured sum. You 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 if you fail to adhere to the new policy, is that a default sum for your 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. It could mean you are either under insured, or paying too high a premium if the insurers estimate is too high.
For most people their home is their most valuable possession. You need to be aware of the terms of your insurance policy, and be proactive in contacting your insurer to ensure your 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.
Jayne Macdonald - Partner