If you buy a house in New Zealand using a mortgage, your lender will require you to have home insurance to safeguard their investment in your home. However, whether you’re buying or renting, home insurance provides essential protection against the loss of your valuable assets. So what is home insurance and what does it cover? Canstar explores:
What is home insurance?
Home insurance covers you financially should something damage or destroy your home and/or belongings. There are three main types of home insurance:
This covers the cost of rebuilding/repairing a property in the event of damage. It often includes adjoining features, such as garages and sheds, pools, decking, retaining walls and garden landscaping. If you have a mortgage, your lender will require you to take out adequate house insurance.
Contents insurance covers the cost of replacing the policy owner’s possessions, should they get lost, damaged or stolen.
Home and contents insurance
Home and contents insurance is a combination of both house and contents insurance. The two policies are usually bundled at discounted prices by insurers, and often come with car insurance, too.
What does home insurance cover?
While the specifics can vary among different insurers, typical events covered by home insurance include:
- Impact damage (like a fallen tree)
- Water escape (e.g. a burst pipe)
- Vandalism and riot
Additionally, New Zealand insurers may provide extra benefits, including legal liability coverage (which covers your obligation to pay compensation if someone gets injured or their property is damaged on your premises) and temporary housing (should your property become uninhabitable due to an insured event).
Home insurance often also covers the costs of temporary accommodation, food, and other necessary expenses while repairs or rebuilding take place.
What doesn’t home insurance usually cover?
When taking out home insurance, it’s essential to thoroughly read your policy document and to fully understand the limits of your cover. Typically, the more expensive the policy, the greater level of cover. However, here are some things not usually covered by standard home insurance:
Normal wear and tear
Insurers expect homeowners to maintain their homes. As a result, damages due to regular wear and tear or neglect are generally not covered.
Certain types of water damage
While sudden and accidental water damage – like a burst pipe – is typically covered, as is flooding due to a natural disaster, there are some exceptions that are worth paying close attention to, such as hidden gradual damage. Only premium home insurance policies tend to contain a clause for hidden gradual damage, and then usually only cover of between $2000 and $5000 for damage caused by leaking pipework, such as NZ’s historically problematic Dux Quest brand plastic piping from the 1970s and ’80s.
Non-consented building work
If your home collapses because you’ve knocked through a supporting wall as part of a DIY project without planning consent, don’t expect your insurer to approve your claim.
If your home is left unoccupied for a specific period (usually 60 consecutive days or more), any damages or losses incurred during this period may not be covered.
What type of home insurance cover do I need?
Of course, what type of insurance you require depends on your personal situation. However, the three main home insurance scenarios are:
If you are renting your home, or flat sharing, you will only need to consider contents insurance or renter’s insurance, to cover your possessions. These two types of insurance are very similar. However, renter’s insurance policies may have some points of difference, such as cover for accidental damage to furnishings in the rented property.
Of course, if you are renting and own a car, you might want to look into what discounts are available for bundling your car insurance with your contents cover. For more information on Canstar’s Car Insurance Awards, click here.
Living in own home
If you own your home with a mortgage, you’ll already have home insurance. And unless you’re living the life of an ascetic and own no other material possessions, chances are you’ll also need contents insurance to cover your possessions. Most insurers offer reduced premiums if you bundle your home and contents insurance, or your car insurance, together.
Property investor (landlord)
Landlord insurance typically covers loss or damage to an investment property and furnishings. Some landlord insurance covers unpaid rent from troublesome tenants, or methamphetamine contamination cover, which can be valuable.
How much does home insurance cost?
How much home insurance cover you decide to take out is up to you. And, the higher the level of cover, the more you’ll pay. Ultimately, you need to pay for enough home insurance cover to be able to rebuild or repair your home if it is destroyed or damaged.
Factors that impact premiums, include:
The quality of the home
The more expensive the home, the more expensive it will be to replace, therefore you’ll need a greater level of insurance cover, which will cost more in premiums.
However, it’s worth noting that the sum insured doesn’t cover the value of the land on which the home is built. This means that if you pay $1m for a home, you don’t need to insure it for $1m. If the land is valued at $600,000 and the home at $400,000, you sum insured only needs to cover the cost of the property, $400,000.
Also be aware of inflation and rising building costs, which can significantly increase the cost of rebuilding a home. Some insurance companies automatically review your sum insured each year, to keep in line with inflation. But if you’ve installed a new kitchen or bathroom, or undertaken other significant home renovations, you will need to factor the costs into a revised level of insurance cover.
It is crucial for property owners to carefully review their insurance policies annually, and to understand the specific coverage and exclusions to ensure they have adequate protection for their valuable assets.
The home’s location
Over the past few years, insurance companies have reviewed the way they assess risk. Historically, the increased costs of risk from natural disasters were spread across entire regions. However, now insurers look street to street and house to house to adjudge property owners’ risk levels.
This means that if a home sits atop a crumbling cliff, or stands in an low-lying area prone to flooding, it will cost more to insure than a home with a safer risk profile.
How much does contents insurance cost?
Even if you don’t own high-value items, the combined value of everything in your home, from furniture to clothes and crockery, can soon add up. Therefore it’s important to create an inventory of your home’s contents, so you know exactly what level of cover you need. Some insurance companies have calculators on their websites that will estimate the contents cover for your home. While these can be useful, they only provide a rough guide. So for a more precise total, it pays to do the maths yourself.
Once you know how much you paid for all the items in your home, you need to choose your level of insurance. Most contents insurance providers offer two types cover:
Replacement: replaces items with ones of similar value. So if your sofa cost you $1000 eight years ago, but is now stained and shabby and only worth $200, you’ll receive a $200 payout.
New for old: the insurance company will replace the item with a new one. In the example of the sofa, it will pay out $1000 for a new sofa.
As you’d expect, new for old cover is more expensive than replacement. But while you don’t want to pay for insurance you don’t need, you don’t want to find your cover lacking in the event of a claim.
How can I choose a home insurance policy?
When deciding on home insurance, it’s crucial to balance both its cost and the provisions of the policy. Reflect on the level of protection you need, compare policies and shop around for the best quotes.
Additionally, it’s important to thoroughly review the insurer’s product disclosure statement (PDS), so you gain a solid understanding of what the policy does and does not cover.
About the reviewer of this page
This report was reviewed by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.