Home and contents, car

Advice for people choosing home insurance cover.

Insurance companies offer a number of different covers all of which are based around two distinct types of cover. These are "Accidental Damage" cover and "Defined Events" cover.

(i) "Accidental Damage" cover:

• Protects you against accidental loss or damage to your home or contents, except if the cause is specifically excluded. Common exclusions include wear and tear, mildew, rot, rust, corrosion, damage caused by insects, vermin or pets, mechanical or electrical breakdown and damage arising from cleaning, repair, restoration or alterations.
• Is not normally available unless you live in the house (i.e. it is not available for holiday homes or tenanted properties).
• Is the widest cover available and therefore the most expensive.

(ii) "Defined Events" cover:

• Provide cover against a specific list of events including major ones such as fire, burglary, storm, flood, malicious damage, vandalism, impact and water damage.
• Is available for homes you live in and those you don’t.
• Is more limited than "Accidental Damage" cover and is therefore cheaper.

Both types of cover usually provide a number of extensions which give additional cover for such things as accidental breakage of fixed glass, your legal liability to others as a home owner, and for additional costs that arise if your home is damaged, e.g. architect's fees, cost of demolition.

If you want the widest cover available, regardless of cost, it is advisable to buy the "Accidental Damage" cover in preference to the "Defined Events" one. However, "Defined Events" covers are usually cheaper and offer good value for money.

The difference between rebuilding/replacement cost and indemnity value

There are usually two "levels" of cover available when you insure your home, these are:

(i) Rebuilding or Replacement Cost: These policies will pay to repair or rebuild your home to a condition similar to the condition when new, but using modern readily available building materials

Rebuilding cost polices may be split into two types:

a) "floor area" policies: the insurance company will pay the cost to rebuild your home to the size stated. There is no "sum insured" limit and provided the floor area is stated correctly, you cannot be underinsured. This type of policy is usually available only for homes built in the last 50 years and provided they are occupied by their owners.

b) "sum insured" policies: the insurer will pay the cost to rebuild your home, but it will not spend more than the sum insured.

With all Rebuilding Cost policies, normally you will not be asked to contribute to the cost of repairs or rebuilding, unless the sum insured is inadequate or the floor area understated.

(ii) Indemnity Value: Policies on this basis will pay to repair your home less a suitable amount for depreciation (ie age, wear and tear). In the event of your home being destroyed, the policy will pay the depreciated value or the market value of your property (excluding the value of the land). The insurance company will not pay more than the sum insured. Your insurance company can advise you regarding methods of calculating indemnity value.

Regardless of which level of cover you eventually select, it is usually best to consult a registered valuer who can offer professional advice when determining your "sum insured". However the cost of a valuation can be quite high. Insurers do not offer professional advice regarding valuation of properties as this is a specialist area, but they can offer you some limited assistance in this regard.

Contents insurance

As with home policies, there are both "Accidental Damages" and "Defined Events" policies. There are also policies which combine both covers by providing "Defined Events" cover for your household effects and an "Accidental Damage" cover in respect of personal effects whilst outside the home, i.e. items usually worn or carried anywhere in New Zealand.

Contents policies usually provide different levels of cover for different types of household goods, i.e. a mixture of replacement and indemnity value cover. For example replacement cover for items less than 10 years old and indemnity cover for items over 10 years old.

Extensions can be obtained (and in some policies may be automatically included) to provide cover for specific types of damage, costs and liabilities. For example loss of frozen foods, additional costs of temporary accommodation if your home cannot be lived in because of an insured event, like a fire. Not all companies offer the same extensions and you should check carefully to ensure that the cover provided suits your needs.

Specified Items: Certain types of personal effects, such as items of worth over a set amount, jewellery, camera equipment, often need to be specified separately and an extra premium paid.

The type and value of items requiring specification varies not only from company to company but from policy to policy within a company, so ensure that you understand exactly what must be specified, the premium payable on specified items and what cover is available to you if the item is not specified.

The wider the cover the higher the premium you will be charged.

Most companies can provide a valuation guide to help you establish the sum insured.

How to make a claim

The policy document supplied by your insurance company should detail the general steps you must take in the event of a claim. If you do not have a full policy document, ask your insurance company to provide one and be sure to read it thoroughly. If there is anything in the document that you do not understand, ask your company to explain it to you.

Generally, if you have a claim you should:

a) not start any repairs without the permission of the insurance company (unless this is to prevent further damage).

b) tell your insurance company immediately you are aware of a loss and notify the police where appropriate, e.g. after a burglary.

c) complete a claim form, and return it as soon as possible along with original invoices and documentation supporting your claim. It is important that you retain copies for your own protection.

d) in respect of claims by other people against you (e.g. if you break someone's window), do not admit liability or try to negotiate, defend, or settle any claim yourself. In these circumstances you should immediately ask your insurance company for advice.

Before paying your claim the insurance company may require you to:

a) prove that the goods existed and you owned the property (you should retain invoices, receipts, instructions manuals etc).

b) establish the value of the property.

c) prove that the loss actually occurred (retain all damaged property if possible).

The best thing you can do if you have a loss is to immediately notify your insurance company. They will advise you on whether you have a claim and exactly what procedures you should follow. It you unduly delay notifying the insurance company, you will probably only make things more difficult for both yourself and the insurance company.

Keeping Records in Case of Claims

You should have the following to assist in any claim:

a) An inventory of valuables with actual or estimated values, including a full description and details of where and when purchased.

b) Current valuations for any jewellery, antiques and other valuables.

c) Photographic or video pictures of valuable items.

d) Invoices, receipts, instruction manuals, warranty cards as proof of the existence and ownership of the items.

Further information

• Earthquake Commission (EQC)
• Insurance and Saving Ombudsman
• Insurance Council of New Zealand
• Consumers Institute