Very important changes to the way your home is insured – this will affect every homeowner…

Generally in New Zealand your current insurance will be full replacement based on the square metre area of your home.  The majority of insurance providers are no longer offering replacement insurance and when your policy is up for its annual renewal (or when you purchase a new property) your policy will change to a maximum sum insured value.

Replacement Insurance vs Sum Insured

To explain the difference:

Replacement insurance means in the event of your property being destroyed or damaged your insurer will replace your home to the area you provided to them when you took out your policy, regardless of the cost of rebuilding.

Sum insured insurance means in the event of your property being destroyed or damaged your insurer will only replace your home UP TO the value you have insured for.  If it costs more to repair or rebuild your home than the sum insured, then your insurer will not rebuild your home to its current state.

When your policy is due to be renewed your provider will send you a letter roughly calculating on a square metre basis the value of rebuilding your home in the event of an accident or disaster.

Things you need to consider when assessing your Sum Insured value

There are many things to consider when calculating your sum insured value for your property:

•  Whether your land is flat or on a slope, the cost of rebuilding on flat land is much lower.
•  The year your home was built.
•  Floor area (including all levels).
•  Construction and roof type.
•  Demolition costs and site preparation – after the Christchurch earthquakes the demolition costs were much, much, higher than estimated.
•  Include any outbuildings, garages, decks and fences.
•  Driveways and paving.
•  Retaining walls.
•  Special characters
•  Private utilities – spa/swimming pools, tennis courts, solar heating, saunas, jetties etc.
•  Professional fees for rebuild or repair could be higher than expected (as is the case currently in Christchurch).
•  Compliance fees to Council etc.

Retaining walls and some private utilities may be covered by your policy up to a maximum value, however some insurance providers do not automatically cover retaining walls and many private utilities (see above) and these need to be named on your insurance policy. You should read your policy thoroughly, and check with your insurer if you are unsure. Get any confirmation in writing and keep it somewhere safe for later reference if necessary.

Why is this change happening?  

These changes are being enforced by reinsurers (the companies that insure our insurance companies against natural disasters – commonly overseas companies) because sum insured insurance is a more accurate way for them to calculate their risk and liability than replacement insurance.

How do you find out more information?

If you need assistance in working out what your sum insured value should be there is information available and professionals that can help you, including:

• The following website set up for this purpose: www.needtoknow.org.nz
• Obtaining a valuation for insurance purposes from a registered valuer.
• Liaising with a licensed builder regarding costs of rebuilding.
• Advice from a Quantity Surveyor.

DO NOT use the rateable value of your property as the value as this may not be accurate.

Finally, once you have calculated your sum insured value it is important that you review this sum regularly, at least every 2-3 years, or in the event of extensions/renovations to your property.