How to side-step the house insurance policy traps

Have you renewed your house insurance? Do you know what all the brouhaha is about?

Insurance is changing and those changes are huge. Anyone who owns a house in New Zealand needs to sit up and pay attention.

The biggest change is that all the major insurers in this country will no longer automatically pay to rebuild homes that are destroyed. Instead of offering “open ended replacement” cover as they did up until the Christchurch earthquakes most major New Zealand insurers have changed to a system where they only pay for replacement up to a fixed sum insured.

The trick is that it’s up to you, not the insurance company to choose the sum insured. It’s a Catch 22 situation. Choose a sum insured that’s too low and you’ll only be able to rebuild part of a house or a lesser quality house. Get it too high, you’ll pay lots more in premiums, but only get paid what the insurance company deems to be replacement value.

House Insurance Policy Tricks

There are other tricks to new-style house insurance policies they include:

  • Value your property.

Some insurance companies are sending out suggested sum insured values to home owners. Don’t take these with a pinch of salt. At the very least use your insurance company’s online valuation tool to double check. Even the online valuation is still a guestimate. If you really want to know what it would cost to rebuild your house then get an insurance valuation from a quantity surveyor or property valuer. These valuations are not the same as a CV or the government valuation that your rates are based on. The cost of rebuilding a house is very different to what it might sell for.

  • Is your house ordinary?

If your house is a bog-standard box on a flat section and with a short driveway you might be able to get away with the sum insured sent to you. bog standard insurance valuations won’t be enough for a property with anything the slightest bit out of the ordinary such as a swimming pool, retaining walls, long driveway or sash windows. Insurance companies’ calculators may not be detailed enough to value an architecturally designed home.

  • New fine print.

Not only has insurance changed from open ended replacement to sum insured. The fine print of nearly every policy has changed. There are many more exclusions in the policies now and every home owner should read his or her policy before it’s too late. Just do it now.

  • Standards of rebuild.

Most policies only cover policyholders for rebuilding with current techniques and building materials. That means unless specified, Matai floors might be replaced with chipboard and pressed metal ceilings with GIB Plasterboard. Most of the new policies don’t require heritage features to be replicated.

  • Cover all the extras.

New-style policies mostly limit the amount that is paid for retaining walls and other “special features” such as swimming pools and tennis courts. It’s likely that a home’s retaining walls are only covered for $20,000 unless declared and an additional premium paid.

  • Act now.

Don’t leave dealing with this until you need to claim. It’s too late then. If you haven’t read your policy cover to cover, do so today and consider getting a sum insured valuation.

Finally, at the time of writing Medical Assurance Society (MAS) and Farmers Mutual Group (FMG) were still offering open ended house insurance. To qualify for MAS you need to be a medical professional.

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