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New Zealand’s Home Insurance Changes

The Home Insurance Changes At-A-Glance

 

Change #1: New Zealand insurance companies will begin using the “sum insured” method to determine the total value of your home. Previously, an unspecified replacement cost method was used based on the size of your home, but this method doesn’t take into consideration age, location, or special property features. With the change, your home insurance policy will state a specific maximum amount of coverage that more accurately represents the value of your home. This amount would be the most your insurance company will pay out for a home insurance claim.

Christchurch Earthquake - Avonside House Collapses

Change #2: Certain home features either will not be covered or have policy or coverage limits that cap the amount an insurance company will pay out for such a claim. Home features include retaining walls, recreational features like spa pools, permanently fixed swimming pools and tennis courts, and special features like private landings, private utility wind or water mills, or diesel generators. If your insurance provider decides not to include coverage for these home features, you will need to purchase coverage separately for them.

 

Reason for the Changes: These changes are being required by international reinsurers who provide natural disaster coverage to local insurance companies around the world. In recent years, earthquakes, hurricanes, tsunamis and other natural disasters where homes have been lost or severely damaged have brought to light numerous situations where homeowners were underinsured when it came time to rebuild.

 

In other countries, like Australia, the United States and the United Kingdom, insurance companies use the sum insured method. Sum insured provides a more accurate cost of rebuilding a home because it reflects the risks related to an individual home and better identifies the cost of claims that could occur to a specific house. Reinsurers now want New Zealand insurance companies to provide them with the maximum amount they will need to pay out in claims so they can better manage their risks.

 

Who’s Affected: The changes apply to New Zealand home insurance policyholders who are insured for an unspecified replacement cost, including homes underwritten by IAG or about to be insured with IAG. If you have a mortgage on your home, your lender requires that your home is properly insured, so you may need to update your coverage.

 

When Will the Changes Go Into Effect: Most home insurance companies will implement the changes during the second quarter of 2013 for all new home policies and from then on the changes will be applied to existing home insurance policies upon renewal.

 

Premium Impact: For some homeowners, the cost of your insurance will not change, but for others, it may increase to better reflect the value of your home. If this is the case, you may also want to revisit your income protection insurance or mortgage repayment insurance to ensure the policy will adequately provide you with the necessary funds to pay your increased insurance if you find yourself out of work.

Contact Income Protection Insurance (http://www.incomeprotectioninsurancenz.co.nz/contact/) for assistance and a policy review.

 

Helpful Resources: If you would like more in-depth information about the changes to your home insurance, Need2Know, a website solely dedicated to providing information about the New Zealand home insurance changes offers a helpful Guide to the Changes (http://need2know.org.nz/pdfs/guide-to-changes.pdf).

 

How Rebuilding Costs Factor Into Your Home Insurance

Rebuilding costs go far beyond the amount to replace your home in the event of a disaster. They also include the costs for replacing other structures, such as the garage, deck, shed and fencing, plus certain features of your home, like retaining walls, swimming pools, etc. Often forgotten but also part of rebuilding costs are: demolition or debris removal costs, site preparation, professional fees and any other costs involved in the building process to rebuild your home.

With the new home insurance changes, homeowners are responsible for making certain their homes are insured for the proper amount. This amount is based on how much it would cost to rebuild your home, plus everything else on your property, back to its original state. The section, here are things you’ll need to know about your house (http://need2know.org.nz/whats-happening/what-is-rebuilding-cost/) provided by Need2Know is a good guide to use.

Some other things to keep in mind:

  • If the coverage limit stated on your policy is less than your estimated cost of rebuilding your home, you need to increase your home insurance coverage. Otherwise, you will have to pay for any shortfall yourself.
  • You may need to purchase separate insurance coverage for certain features on your property or in your home if they are not covered by your home insurance policy. Otherwise, if something happens to them, you are fully responsible for the cost to replace them.
  • The cost to rebuild your home is different than the price you paid for the property (land).

 

To help you estimate the cost to rebuild your home, we recommend the free online calculator tool (http://need2know.org.nz/what-you-need-to-do/calculator/) provided by the New Zealand government.

Your Next Step

When your home insurance policy renews, a sum insured value will be automatically applied to it based on the size, location and age of your home. But it is your responsibility to determine if this amount is adequate.

The best way to prepare for these homeowner policy changes is to review your latest home insurance policy. Check for the following:

  • Does your policy list a sum insured amount on the Policy Schedule (i.e., a specific maximum amount of coverage)? If so, is the amount accurate and up-to-date, and does it take into consideration all your home’s features and current specifications? If not, contact your insurance company or broker to review your coverage and the changes required.
  • Does your policy use an unspecified replacement cost based on the size of your home? If so, you need to estimate the cost of rebuilding your home using the free online calculator tool (http://need2know.org.nz/what-you-need-to-do/calculator/). You can also ask a licensed builder for an estimate on the cost to rebuild your home or have a registered valuer perform a home valuation. Then contact your insurance company or broker to adjust your sum insured coverage accordingly and purchase additional coverage for features not included in your policy.

If you have questions or concerns about New Zealand’s changes to home insurance policies, Need2Know’s Frequently Asked Question web page (http://need2know.org.nz/get-support/faqs/) covers a wide range of topics and is a helpful resource.

Or contact us directly and we can arrange for someone to contact you.

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Common Reasons For Your Application Being Declined

Insurance is an industry that is based on risk. The insurance companies are hoping that people will take out policies and then never use them. In fact, that is the very business model that describes insurance as both an industry and as a product.

Insurance companies are happy to take our monthly premiums, but they are not happy to pay out claims. Below are some of the more common reasons why an application for income protection may be denied.

Mental Illness and Pre-existing Conditions

History of Mental Illness, which may include depression, is one of the common reasons that some applications for income protection may be denied. Insurance companies are looking for any kind of personal history that may increase the risk of accident or disability.

The human mind is complex symptoms of mental illness are not always clearly displayed or recognized, and therefore, are hard to dispute. People who are depressed may not care enough to work safely, and as such an insurance company may deny an income protection application. Pre-existing medical conditions such as cardiac anomalies like fibrillation, previous back injuries, etc. may also be a red flag to insurance companies because of the increased of a disabling accident.

Drug Use and Alcoholism

Applications for income protection can also be denied based on positive history of drug use or excessive alcoholism. Both drugs and alcohol are known to impair judgement which can lead to risky behaviours or activities. Because income protection policies are activated once an injury occurs that prevents the policy holder from working, insurance companies look closely at events that lead up to an accident.

Profession and Job Duties

There are jobs and professions that are not covered with income protection insurance. High risk industry are usually denied. Risk is measured differently by carriers, and as such, consumers should check with a broker about specific industries that may not be included. There are cases where people have been promoted at work, injured and then had their income protection claim denied because of their new job title. This is really a grey area, and as consumers, it is best to ask detailed questions before buying a policy.

Age

Age is another criteria that can cause income protection applications to be denied. Most policies specify an age range to qualify. Typically the age range is 18-55 years. There are a few companies that will accept an income protection application for workers who are 16 years old, and a few companies that will extend coverage for people up to 65 years old. The normal range for the industry, however, is 18-55 years.

Past Claims

Applicants that have prior income protection claims may also find that their application for new insurance is denied. Again, this is seen as an increase in risk or even of fraud. If you have had an injury or illness that has caused you to become disabled, then the probability of that happening again is measured as risk.

Redundancy

If you are made redundant or your job is eliminated, than most likely your application for income protection insurance will be denied. There are some companies that do, however, offer income protection for redundancy.

Conclusion

The insurance industry measures risk and then assigns a policy cost for each new policy that is written. Situations that increase risk either raise the price of the policy or cause the application for the policy to be denied. The preceding paragraphs discuss some of the more common reasons why an application for income protection insurance may be denied.

As consumers, the best advice is to shop around to several different carriers. Not every insurance carrier has identical requirements, and some are not as strict as others.

If your claim is denied and an appeal is not an option, consumers can contact their local insurance ombudsman and see if the ombudsman can get to the bottom of the denial. The insurance ombudsman is an authority that operates independently. The service is also free and open to consumers with claims that are valued less than $100,000.

Using an insurance ombudsman to help sort out a denied application is a good option. The insurance ombudsman would be knowledgeable about laws and recent legal changes that govern the insurance industry. The ombudsman may also have other options for coverage available or connections to help find coverage for you. As a closing note, make sure that the application for insurance protection is filled out completely and that all of the information that is listed on the application is true.

 

(This article and all articles on this site are not to be taken as professional insurance advice, for such advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)

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More Kiwis Have Life Insurance than Income

iStock_000004625200_ExtraSmallMost adults understand what happens if the head of household dies. This is why 50% or more of New Zealanders have life insurance. We all understand what happens if we do not have health insurance and somehow suffer a major medical event. So why is income protection seen as something that is unnecessary. The financial risk to a family is somewhat larger if the head of household is unable to work because of illness or injury that cause disability.

Understanding the Value of Income and The Risk of Losing it

The risk of losing ones income through disability is greater than losing ones income due to death, and yet statistical data presented on many insurance websites indicates that only 11 percent of New Zealanders purchase income protection. Could the reason for not having income protection be because of confusion over ACC? Do people not understand the risk that is involved with not having income protection?

ACC vs Income Protection

We know that ACC covers us in the case of an accident, but does it cover us in case of illness. The answer is both yes and no. ACC does not cover ordinary healthy issues such as heart attack or stroke unless those conditions are the result of an accident. If a tree falls on your car while you are driving along, and you suffer a heart attack, ACC may cover your lost wages while you recover. The relationship between ACC and pre-existing conditions is also a grey area. If you suffer from a pre-existing condition such as degenerative joint disease and ACC will cover you until you are back to your previous condition, and that is seen as your condition including your debilitating disease.

While ACC is reliable in some cases, it should not be relied on to cover income loss through disability. Considering what ACC does not cover and the fact that it takes people longer to recover from illness or injury income protection just makes sense. The reason for this is that modern medical advancements are saving more lives than they did in the past. Saving lives equates to longer recovery periods for patients, and that means more time out of work. A longer recovery period is not going to be paid for by life insurance. This is why income protection is important to every working adult.

One of the primary reasons that people turn down income protection insurance is the cost. Consider that a working career that spans 20 or 30 years can be worth millions of dollars. Any interruption to that career is likely to cost more than the premiums for income protection. Can afford to sacrifice one or two years worth of annual income? The answer is likely no, and yet people sacrifice a great deal more when they do not have income protection. There are case studies upon case studies that document how people fall ill and can never go back to work. How much income does such an event cost in lost wages?

Case Study:

Think about the stories that you hear from your friends. Tragic events happen every single day. Brian is a 26 who worked for four years as a pharmacy technician. He is married, has a daughter who is 3. One day while bending over to picking up his daughter he feels a sharp pain in his left eye and blurred vision. In the 45 minutes, it takes for his wife to get home the pain has increased and he can not see out of his eye. Brian has suffered a tear in his retina. Following surgery, and for the next six weeks, he is confined to bed in a face down position. The problem with Brian’s case is that his injury reoccurs 17 days after recovery.

Brian has suffered a random injury that he never thought would happen to him. This is just one example of thousands of cases that cost people a chunk of their life-income. This is also a good case to review because of Brian’s age. It brings to light many points that people dismiss or fail to see. An accident or illness can happen to anyone at any age. Understanding that the income that is made over the course of your working life is an asset that needs to be protected is also critical. Working adults will opt to pay for car insurance, life insurance, health insurance and yet only 11% are willing to protect their income from loss.

Where To Find Income Protection Insurance

Income protection is not difficult to find. It is offered by banks, and it is offered by insurance brokers. Banks by nature tend to be limited to just their version of income protection; whereas, a broker many have many different policies from which to choose. It should not be confused with mortgage protection insurance which is similar, but does not usually cover lost income. It may pay your mortgage, but that is about all it will pay. Income protection pays 55-75 of your annual income as a month payment. The policy holder decides how that money is spent.

Tips For Filling Out Your Application

Issues usually revolve around understanding what is covered and what is not. If you have a pre-existing condition, then be prepared to list that on your application. Chances are it will be excluded, or the policy may be priced to reflect the added risk of the pre-existing condition. Failure to fill out the policy accurately is one of the primary reasons why insurance companies either reject an application or reject a claim. The advantage is to the policy holder to be honest when they fill out their application, because it allows for a clear and decisive policy that the holder can then approve or reject. Either way, all parties involved understand exactly what is covered and what is not.

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Can I Receive Benefits If I am Pregnant?

pregnant-income-protectionIncome protection insurance is designed to protect our income from loss if we become disabled through injury or illness. The physical ramifications of pregnancy do not specifically fit into the concepts of disability through the eyes of insurance providers. To answer the question, Can I receive income protection benefits if I am pregnant, requires that we look closer at some policy language. The general answer to this question is typically no. However, there are cases where income protection benefits were paid after the pregnancy ended. Lets take a look at some of the policy languages that you are likely to see regarding pregnancy.

Under the Tittle of Exclusions

There is usually a generalized disclaimer that states the insurance company will not pay any disability insurance benefits when any of the following list causes or contributes to the disability in a direct or indirect manner. Under that list will be a clause about pregnancy.

The generalized statement typically reads as a continuation of the above clause. Pregnancy or childbirth unless the total disability lasts for more then 90 days past the end of the pregnancy. The benefit wait period will begin on the 91st day following the end of the pregnancy.

What does this mean?

It means that, during the pregnancy, the insured is not eligible to receive income protection benefits, regardless of disability. The insurance company views pregnancy as self inflicted or a choice that the insured made which contributed to disability. In other words, if the insured had not become pregnant then they would not be disabled.

That is an important statement, and it is somewhat vague. What if your disability was not caused by pregnancy? There is no clear answer to how this question may be answered by the insurance company except to say that ” if caused by” or “contributed to” are clearly written in their disclaimer. These are both catch phrases in that they are broad and undefined. What does “contributed to” really mean? It means that pregnancy is a way out for many insurance companies, but that the law that surrounds consumer protection may be able to help. Insurance companies are happy to take your premiums, but they do not enjoy paying claims.

Another issue that may become a problem is the length of time involved in disabilities surrounding pregnancy. A pregnancy usually lasts for 9 months, and the wording of the policy is that the wait period begins on the 91st day after the pregnancy has ended. That is a year and 1 day. That is an interesting number, because benefits are paid based on annual income and annual income is one year. If the policy holder has not worked for a year, what is their annual income?

The phrasing that goes along with income protection policies is full of ways that insurance companies can get out of paying a claim. It is important that consumers pay careful attention to the finer details of each policy because those are where the pitfalls lie.

I did find a few policies that offered disability payment if the insured became disabled while pregnancy and that means that the answer to the question can you receive income protection benefits while pregnant is yes. The policy also listed that if the insured had been on leave for more then 12 months then the policy benefit would be limited to $1,000 per month. That clause is important too because it brings into light the time frame issue of the length of pregnancy, the wait period and the 90 day hold period following pregnancy. These time frames all add up to just over a year.

In closing, the good news for consumers who may become pregnant is that benefits for income protection can be paid while you are pregnant. The downside is that policy language is full of loop holes that benefit the insurance company. For income protection outside of pregnancy, many policies exist to help cover the loss of income from disability. Our income is still our greatest asset, and in the long run income protection insurance may help when an accident or unforseen illness occurs. Take the time to read the fine print. Remember too, that value is not always a reflection of price.

 

(This article and all articles on this site are not to be taken as professional insurance advice and information may not be accurate, for insurance advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)

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What is the Difference Between Mortgage and Income Protection Insurance

The primary difference between mortgage protection insurance and income protection insurance is that mortgage protection insurance covers your home, while income protection insurance covers annual wages, which equals your standard of living.

Mortgage protection insurance is insurance protection that is taken out either as part of a mortgage or as a supplemental policy. It is designed to pay your mortgage even if you become disabled through illness, injury or if you become unemployed.

Income protection insurance is insurance protection that is taken out to help replace your income if you should become disabled through injury or illness. Income protection insurance does not normally pay a benefit for unemployment, though there are a limited number of policies that will pay if your job becomes redundant.

Again, the primary difference between the mortgage protection insurance and income protection insurance is that mortgage protection covers only your mortgage payment while income protection will replace up to 75% of your annual income. It is likely that if you were to become disabled then income protection insurance would pay you the greater amount as compared between the two policy types.

Choosing Between The Two Policy Types

If a consumer had to choose between which type of policy to purchase, than the choice may be Income protection insurance. The reason is that our income is usually our most valuable asset, and it is our income that allows us to pay our mortgage. Further, if the policy holder became disabled then income protection benefits would help them to pay not only the mortgage but to pay other expenses as well. Many people have both types of insurance if possible because income protection insurance only pays up to 75% of their annual income and not 100%. Already, they would be facing a 25% loss in income, but if they also had mortgage protection, then their largest expense would be paid and the loss of income would be offset by the payment of your their mortgage.

The benefit of mortgage protection insurance over income protection insurance is that mortgage protection insurance will pay your mortgage if you become unemployed or if your job is made redundant. Income protection rarely pays for loss of income if the reason for the lost income is unemployment and then it is only if the loss of employment is through redundancy. Some mortgages require that, as part of the mortgage, a mortgage protection policy be in place. If that is the case, then consumers often also consider the benefit of adding income protection insurance as a personal policy.

Income protection insurance is important because, without our income, we have very little to nothing. Income protection insurance can cover us for our working lifetime and help to replace lost income if we become disabled through illness or injury. Many consumers do not realize how much income we are capable of earning over the course of our working lifetime. To demonstrate that point lets look at what an average income would be over the course of a working lifetime. The average annual income in New Zealand is $47,900. For the sake of simplicity, lets bump that up to $48,000. The working lifetime of most adult is age 19 through age 65, which happens to be 46 years. $48,000 x 46 = $2,208,000. That is a lot of money. That is probably our greatest asset and, for that reason alone, it should be insured against loss. Without income protection and if disability should set in, the financial picture of our greatest asset becomes substantially less. This is why income protection insurance is important. Without income protection how do we pay our expenses? If we owned a piece of art that was valued at 2.2 million dollars, we would certainly insure it.

Looking out for our own financial well being is a chore but when taken responsibility for is often worth it in the end. If you are unsure where to start, it is usually a good idea to talk with a financial advisor before picking out an income protection plan anyways.

In closing out this article, keep in mind the difference between mortgage protection and income protection. Both are designed to help you when times are hard, but income protection will cover more of your expenses while mortgage protection will just cover your mortgage. Since our income is our greatest asset, it is important to look at how our lives would be impacted if we became disabled or unable to work.

 

(This article and all articles on this site are not to be taken as professional insurance advice and information may not be accurate, for insurance advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)

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Mortgage Repayment Insurance at-a-Glance

Mortgage payment protection insurance specifically ensures that the monthly payments to meet your mortgage obligation will be paid, thus giving you peace of mind of not losing your home to mortgagee sale if you are hospitalised, being treated for an illness, or suffer an accident.

Income-Protection-Insurance-2

Generally, mortgage protection insurance is designed as short-term protection, providing mortgage loan repayments for up to 2 years or to age 65 year at a maximum coverage amount of 110% of your monthly mortgage payment to factor in mortgage-related costs, such as buildings and contents coverage and life assurance.

NB: Asteron now has a new product that allows you to cover 40% of your gross income under MRI Insurance which allows you to claim ACC + MRI cover should you have an accident.

 

What Mortgage Repayment Benefits Provide

When mortgage repayment benefits are added your risk portfolio, you have no income offsets. This means any sick pay benefits from your employer and/or personal injury compensation, if applicable, from the ACC will not reduce the amount of mortgage repayment benefits you receive during the time you are unable to work.

Furthermore, mortgage repayment coverage is an agreed value benefit, so your insurance payouts are not taxable. And because mortgage repayment insurance is capped at 110% of your monthly mortgage loan payment, you have the option of adding income protection insurance to it so you can receive coverage for your income. When you take this option out we reduce the amount on your income protection side not your mortgage repayments.

Income Protection Insurance Overview

Income protection coverage is designed to replace up to 75% of your income if you are unable to work for a long period of time. The payments you receive from income protection insurance can be used to pay whatever expenses you choose, including your monthly mortgage payment.

However, with income protection, there are income offsets, which means if you qualify for sick pay from your employer or ACC, your income insurance payouts could be reduced accordingly – depending on the policy type.

 

Mortgage Repayment vs. Income Protection

Your specific situation will dictate whether mortgage protection insurance with mortgage repayment benefits is better for you than income protection. Some people find income protection insurance more beneficial because it provides long-term payouts, covers more than just your mortgage and provides greater protection. On the other hand, those with a healthy savings account find mortgage protection with mortgage repayment benefits adequate and some people like a combination of both.

Cost wise you would pay about the same if your repayments were of equal value with your income, but when split with income protection and mortgage repayments you can tap into a nice top up should you ever claim on ACC long term collecting both MRI and ACC. Something you can’t do with IP cover alone.

If you need help figuring out which coverage is best for you, you can count on IncomeProtectionInsuranceNZ.co.nz to give you unbiased guidance that is based solely on your specific circumstances and budget. Our goal is to ensure you are properly insured in the event the unexpected happens.

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Mortgage Insurance and Income Protection

Happy FamilyMortgage Insurance and Income Protection Pays When You Can’t

Whether you purchased a home or are renting, paying the monthly mortgage or rent payments when you lose your job or are out of work because of an illness or injury can be challenging, if not downright impossible. But there’s no need to put this added stress on you during an already tough time when there is insurance to protect you in these circumstances.

The Benefits of Mortgage and Income Protection Insurance

The affordability of mortgage and income protection insurance means there’s no need to turn to family members for a loan or to wipe out your savings and retirement accounts to pay the mortgage, rent and other bills, like house and contents insurance, taxes, or land rates.

Payments from your mortgage insurance and income protection policy kick in when your income significantly diminishes because of an illness or injury that keeps you from working, or if you lose your job due to a layoff at work*

With mortgage insurance and income protection, your home or rental is never at risk. Plus, mortgage and income protection works in conjunction with ACC, so if you qualify for the government’s personal injury cover, your ACC claim will not be denied because you have other insurance.

TIP: Mortgage Insurance is the only insurance that’s not offset by ACC where as Income Protection is.

What does this mean?

If you make a claim via ACC you ‘can’ claim on your Income Protection Policy but not always. You must realise that ACC pays 80% of your gross income (up to $113,000 pa) and most private insurance policies pay between 55% and 75% of your gross income, therefore the insurance companies will off set your ACC payments paying you zero as the 80% is higher than what you can claim under private cover – you can’t claim both!

However, if you have Mortgage Repayments insurance it is not offset as this is deemed as insurance against an asset or debt therefore it’s not assessable.
What this video here which explains this in more detail.

TIP: If you have Cover Plus Extra (Self Employed) and have dialled down your ACC Cover you will be able to claim on Income Protection as the amount will be lower than your private cover therefore claimable – watch this video here as this explains how it works.

Customised Insurance to Meet Your Budget

Insurance companies offering mortgage and income protection insurance have designed numerous coverage options to meet the needs and budgets of New Zealand’s homeowners and renters. Various benefit payment period options and waiting periods allow you to customize a policy that is perfect for your lifestyle.

TIP:As a rule of thumb you can either insure 40% of your income or 110% of your Mortgage Repayments under Mortgage Repaymets insurance. And YES you can get this cover without having a Mortgage!

A coverage and rate comparison can help you easily select a mortgage and income protection insurance policy that’s right for you. With it, you can do a side-by-side comparison of policies from several insurance companies to help you make an informed choice.

With mortgage and income protection insurance, you can protect your home and the financial security of you and your family for whenever life throws you a curveball.

*If you loose you job you must have Redundancy Cover. Mortgage and Income protection does not cover you if you’re made redundent. Redundancy Insurance is an ADD ON.

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