Property, Policies And Protection

Here's an imaginary scenario. Your home is insured for $300,000. A massive fire sweeps through the property and you lose everything. Your insurance is for replacement value of the house so you know you can rebuild your home. But have you factored in clearing the site, replacing damaged cables, paths or driveways, fences; replanting vegetables, lawns and flowers?

Chances are, you probably didn't even think of those things when you took out your original insurance. And yet to get your house and land back into working order is going to cost another $50,000. Where does that money come from if it's not insurance?

Furthermore your original replacement policy would have been calculated on the price at the time you insured, even if that's been updated (say) a couple of years ago. In that time, as insurance companies operating in Christchurch discovered, building and material costs have gone up considerably along with accuracies in their replacement assessments so their exposure is considerably more than they allowed.

That's why major changes to the way insurance policies work are now taking effect and it means paying higher premiums. Whereas at one time your home insurance cover was based on replacement of the floor area specified, now insurers will require you to specify the sum insured based on the amount to rebuild.

Fintan McGlinchey of Northland Valuers says the reason for the change in insurance procedures is because insurance companies want to control their risk. They discovered post-earthquakes that many homes were

under-insured for replacement and that came at a considerable cost to the insurance companies.

"In Christchurch the insurance companies were doing their calculations on their replacement cost assessments and they were under-shooting it. They felt the exposure to risk was X and following the quake it has come back at a considerable higher figure."

Now as part of your insurance application you will need to provide an estimate of the cost to replace your home. Insurance companies are directing their clients to online calculators to make these assessments as well as using a registered property valuer. But what if this online 'assessment' says your home will be worth such-and-such to replace and you disagree? Also has this assessment allowed for your driveway and other site improvements?

Fintan McGlinchey says when using these online calculators make sure all your improvements have been allowed for. For most of us in the Far North with houses roughly in the $200,000 - $350,000 replacement category, these online assessment could well be satisfactory. However for the higher-cost homes - $500,000 or more - the margin for error could result in significant shortfalls. It will literally pay to ask a registered valuer to assess the replacement cost for your property. Moreover the registered valuer carries the liability in the event of an incorrect valuation unlike the online 'calculator/assessor'.