Most homeowners are aware of the importance of insuring what is likely to be their biggest asset. Now, with changes to many home insurance policies in New Zealand, the way lots of Kiwis go about insuring their homes is also going to change.
Over the next twelve months, many New Zealand home insurance policies will switch from insuring homes for their actual replacement cost to insuring homes for up to a specified Sum Insured amount. Many new and existing homeowners will be asked to estimate the cost of rebuilding their home as a way to assist them in setting the Sum Insured. While different insurers may use different terms, generally a home's Sum Insured amount will be the maximum amount payable to repair or rebuild a home.
It's important that their home's Sum Insured amount reflects the likely cost to rebuild their home. If homeowners set their Sum Insured too low, it may not be sufficient to meet the cost of a major future claim and the homeowners may have to rebuild or repair their home to a lesser size or quality, or pay for some of the repairs themselves. Conversely, if homeowners set their Sum Insured too high, they may be paying too much premium - and if it costs less than the Sum Insured amount to repair or rebuild their home, then only the actual cost will be payable.
It's all about understanding rebuilding costs
The significance of the changes won't be lost on homeowners. IAG New Zealand Limited ("IAG") - New Zealand's largest general insurer - is recommending its customers decide on their Sum Insured by looking closely at what their homes, including features such as decking, paving, fences and driveways, might cost to rebuild. This should help them set a Sum Insured that better reflects their home than a level of cover based on simpler measures such as floor area multiplied by a square metre building cost.
