Insurance can be tricky. These are some issues to consider:
Be wary of cheap policies. It can be a big mistake with home insurance to buy a "budget" policy, which companies that advertise on TV sometimes refer to as "tailor-made".
Your house is usually the biggest investment you will ever make and you really need comprehensive cover that includes "accidental damage". Cheap insurance often has serious limitations such as only covering for a limited list of risks or only paying out "market value" not "replacement" if the house is destroyed.
"Market value" policies, also called "indemnity", cover only what it would cost to buy the equivalent second-hand house, not to rebuild the one you have.
Just ask Christchurch homeowners whose market-value policies left them unable to rebuild. All the big insurers that have been around a few years, such as AA, AMI, State, Vero, NZI, MAS, and FMG, as well as the banks, will automatically offer you an all-risks replacement policy unless asked otherwise.
Save money by taking a higher excess. If you really can't afford the fully comprehensive cover, save money by taking a bigger excess rather than a lesser policy.
Chances are that you won't have to claim very often and a few extra hundred dollars excess will be neither here nor there if you have a big loss. By upping the excess you can still get the best level of cover, reducing your risk significantly.
Fire and general insurance brokers sell policies from a number of different insurers. They can compare the policies for you and help you understand what you're covered for.
For example, some policies cover gradual damage from hidden water leaks and others don't. It doesn't cost you anything to use a broker. They earn commission from the insurance companies. Your mortgage broker may offer insurance broking services or have a relationship with an insurance broker. Good brokers will go into bat for you if you have a claim.
In New Zealand most comprehensive insurance policies cover you for the cost of rebuilding up to the sum insured. You'll be asked when you take the policy out to specify that sum insured. It's important to know that the cost of rebuilding your home is quite different to the price you paid for it.
Most of the insurance companies have rebuild calculators on their websites. A better, although more costly, option is to get a quantity surveyor to provide you with a rebuild valuation.
When doing your due diligence make sure any renovations have code compliance, and check the LIM for any identified natural hazard risk and inform your insurer, says Grafton.
If you don't declare these things your cover may be void. What's more, make sure you disclose to the insurer if you will have flatmates, rent the property out, plan to do building alterations, or leave the house unoccupied for more than 30 days. Failure to do so could result in claims being declined.
You've probably heard stories of insurers not paying out. There are always exclusions on policies, and you need to know what they are.
The policy will tell you, for example, if your carpet, out buildings, solar power systems, swimming pools, jetties, bridges and everything down to the kitchen sink are covered or not.
Most policies, for example, don't pay out for things such as deliberate damage by guests to the house, wear and tear, contamination (such as boarders cooking methamphetamine in their bedrooms), and for parts of your home used for business other than a home office.
Finally, insurance isn't cheap. But you owe it to yourself as well as the bank to make sure you cover your risks.
