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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