KEY POINTS:
Insurance is something most people tend to dispatch to the nether regions of the mind. We don't like to think of getting seriously ill, being burgled, having a car accident, or dying.
Yet failing to pay attention to insurances can be very costly, or leave your loved ones
in serious financial trouble on your death.
Here are some real life examples from the Insurance and Savings Ombudsman showing what can go wrong:
* A woman had jewellery and cash stolen from her home while away on holiday. Because there was no forced entry and the thief must have been invited in by a house sitter, her contents claim was declined.
* Another house owner claimed for gradual damage after finding that a copper pipe under the bathroom floor was leaking. The claim for the cost of digging up the concrete and repairing the pipe was declined, because the pipe was not covered and the leak itself had not caused damage.
* A couple's car was written off in an accident by their son, but the claim was declined because the husband's and son's traffic convictions weren't declared when the policy was renewed.
* A life insurance claim was declined because the man had failed to declare that he had been prescribed anti-depressant drugs a year before taking out the policy and had attempted suicide that same year. The sad fact was that he may have been covered at a higher premium, and his dependents paid out, had he declared these episodes.
Unfortunately there are many traps for the unwary, but here are 10 to avoid:
1. Replacement or indemnity? Insurance policies often cover the replacement cost of items lost. If they don't and you're paid "indemnity", which is the current market value of those items, you may not get enough money to buy replacement items. Replacement cover is more expensive, but may be worth the extra money. Some policies may limit certain items to indemnity cover even in a replacement policy.
2. Working from home? If you ever work from home check that your computer and other equipment is covered by your contents policy or if there is a monetary limit on claims. For example, AMI's Premier Cover has a limit of $1500 per claim - although this can be extended up to $10,000 by paying an extra $50 plus GST a year. The policy, however, only pays the current market value of those items, not replacement.
3. Prevention is better than cure. Insurance claims always cost you one way or another. First there's the excess and then there's the heartbreak and hassle of replacing items. It's worth thinking about easily preventable claims and taking precautions. These include everything from installing smoke alarms at home to putting valuables in the boot of a car rather than on the front seat. It's worth taking an inventory of your possessions. Make a list, keep receipts, photograph or video all your possessions and keep these in a safe place away from the home.
4. Increase excesses to reduce cost. One of the best tips for cutting the cost of insurance is to increase the excess. It can also help make premium cover more affordable. Another tip for saving money is to restrict who's covered, especially for motor insurance.
5. Churning - don't become another life statistic. Life insurance salespeople often get big fat commissions up front when they sell a policy. So every few years they'll try to get you to sign up to a better one so they get another bite at the cherry. If your health has changed in the meantime, however, you could find that the new cover is more limited, or come claim time something will be excluded because it was "pre-existing" that would have been paid under the original policy.
6. Travel insurance is an essential, not a luxury. Too many people only consider the consumer goods they might lose and don't insure. Yet the biggest worry is getting ill or having an accident in another country. It's not uncommon for medical bills to run into tens or hundreds of thousands of dollars. Another common mistake is assuming credit card insurance will cover you - it may not. What's more, when you hire a car on holiday, consider taking out collision waiver insurance.
7. Be careful when completing claim forms. Keep what you say in a claim form concise so that it can't be misconstrued and make sure that everything you say is 100 per cent truthful. Keep a copy of the form to re-read should a claims assessor visit you, and supporting documentation such as detailed records of phone calls with the insurer or assessor and receipts.
8. Disclose everything no matter how small. It's a good idea to err on the side of caution with life and health insurance and declare pre-existing illnesses. Otherwise you or your beneficiaries could have the claim turned down once it's too late. Likewise, says ombudsman Karen Stevens, don't take out insurance for a son or daughter who can't get insurance. Your claim will be declined for non-disclosure. The same can be said for failing to declare previous claims.
9. Don't over-insure. Be aware that with some insurance your sum insured increases every year. It's a good idea. But make sure that you're properly covered. The website Grownups.co.nz has a useful calculator for life insurance at www.grownups.co.nz/content/how-much-insurance-cover and Kiwibank has a very helpful contents calculator at www.kiwibank.co.nz/products/contents - calculatorx.asp.
Beware of added extras when buying insurance, such as roadside assistance if you already have an AA membership, or mechanical breakdown cover if you have a newish vehicle under warranty. Likewise you should consider reducing the sum insured on your car every year.
10. Read the policy, read the policy, read the policy. Never assume that your policy covers you for everything.
Insurance policies are filled with all sorts of curly clauses. A good rule of thumb is the cheaper the policy, the more exclusions and fish-hooks to avoid.
