Home Truths: Running for cover? You should be

Tim Jones, partner, Glaister Ennor. Photo / Supplied.

The whole country was shocked and devastated by the recent earthquake in Christchurch. Then there was the massive storm which caused extensive damage in Southland and other parts of the country.

Those who own homes and those who are about to own homes should consider the recent events a wake-up call when considering insurance.

In taking out insurance, there are a variety of factors that one must consider. Sometimes these are dictated to you by your mortgagee. Often one can be guided by the insurance company or one's broker to consider the following points:

The type of insurance you need for your property - is it to be replacement and reimbursement insurance or simply indemnity against a set value?

What are the special features of your house that must be taken into consideration - eg. its age, its construction, and other features such as fireplaces and outbuildings?

Are there any special features of the land that may affect your insurance?

Often, depending on the type of house and its age, insurance companies will insure for indemnity only up to a certain sum of money rather than offering full replacement cover.

The difference between the two is significant, but it may not be a matter of choice. Also, there is the question of the premium between the types of cover.

Then there is the question of type of construction of the house and its age, and more particularly whether or not you have a Code Compliance Certificate for it. Houses built in the late 90s or early 2000s with monolithic exterior cladding may have some difficulty in being insured.

If, for whatever reason, the building does not have a Code Compliance Certificate, the insurance company may load the insurance premium or create special terms for the cover.

Features of the land may also have some influence on your policy. Some special features, such as to geo-technical conditions, overland flow paths and others, can be imposed by the territorial authority by notices on your title. This can have an influence on the insurability of the building. Your lawyer will advise you on these issues and assist in providing the insurance company with the details.

When buying a property, timing is critical when it comes to insurance. Under the standard ADLS/REINZ agreement, the property is at the risk of the seller until the date of settlement and possession. However, mortgagees will not advance monies for settlement and possession until they know the property is insured and they are "on risk". Therefore, buyers must ensure that they have insurance in place prior to taking possession - and, in fact, if they have a mortgage they will be required to do so.

There is not sufficient room to go into the legal technicalities of insurance under the standard ADLS/REINZ agreement, but suffice it to say that there is a clause covering these sorts of issues and in particular the consequences of the building being damaged before settlement.

When building a new home, the building contract will determine the insurance during construction. Almost always it falls to the builder to take out builder's all-risk insurance and your lawyer should be checking to ensure that it is adequate. Also, you will need to put in place insurance to take over from the builder's all-risk cover the moment you move in.

House alterations are another story. In my experience, it is not unusual for alterations to be done under very loose building contracts. This is dangerous. Homeowners should make insurance by the builder a key factor or make sure they insure the alterations themselves.

Homeowners often forget that they should be telling their mortgagee they are making significant alterations to their home. If they do inform the mortgagee, often the mortgagee will remind them about insurance requirements.

Finally, once the alterations are finished, homeowners should organise an increased cover.