The tragic Auckland floods, Cyclone Gabrielle, and the recent surge in construction costs have thrown a harsh spotlight on the need for home insurance.
Being underinsured can leave deep financial scars.
More than 20,000 claims related to the Auckland floods have been made, and more are expected. It’s New Zealand’s largest climate-related insurance event, according to Westpac Bank officials.
And as we’ve seen in other parts of the world, these climate-related disasters – whether it’s floods or wildfires experienced most recently in Chile, or regularly in Australia, California and southern Europe – are not going away.
And this makes home insurance essential for homeowners.
Compounding our challenge is the rising cost of construction materials, which have outstripped our overall inflation rate, currently at 7.5%.
Buying home insurance is something of a skill, however.
While basic packages cover most eventualities, you must understand what’s outside the deal. Below, we’ve put together a short guide for you. But if you’re concerned about your proficiency in buying insurance, we suggest you talk to an insurance broker.
Replacement cost
You should have coverage that guarantees the replacement cost, regardless of the actual amount. Why? When disasters like the Auckland floods occur, you’ll find construction materials and labour in short supply, and prices will spike.
Finer detail
Depending on the company you’re dealing with, you may find two types of insurance available. The first is “sum-insured cover”, calculated on the estimated rebuilding cost if your home is destroyed. The second is “total replacement cover”, a better but more expensive deal that will finance the rebuild or repair of your home to the same standard regardless of cost.
Flood risk
Disregard the media’s throwaway lines such as “one in 100-year event”. There are a lot of those around at the moment. Learn the lesson of Auckland and have a water-tight policy for flood risk. Quiz your insurer so you know exactly what’s covered.
Leak free
Floods are not the only potential water threat. Faulty plumbing, gutter and drainage problems can cause structural problems that are expensive to fix. Again, be diligent in finding out what is covered.
Natural disasters
Don’t assume you’re covered for all types of natural disaster. Investigate what’s included in your policy, especially as we live on the Shaky Isles.
Force Majeure
Watch for this phrase. It means you’re not covered for unforeseeable events, those external to your policy, or those so serious that contractual obligations can’t be met. Ask for your insurer’s definition of this phase and what it means for your coverage.
Contents insurance
Spend time considering the value of all your personal belongings and the cost of replacing them. If you underestimate the value and disaster strikes, you’ll be the one out of pocket.
Liability
It’s worth asking about the need for liability insurance in case someone is injured on your property. It’s not necessary if you live in an apartment, as liability is held by the building owner or body corporate.