Major changes to home insurance

As a result of the recent Christchurch earthquakes and consequently the reaction of reinsurers of insurance companies now taking a particularly cautious approach to home insurance policies, we are now seeing many such companies decline to offer Replacement Home Insurance.

Up until very recently your insurance company would have typically been able to offer insurance for your home on either of two basic principles:

  1. Replacement: This policy would essentially bind the insurance company to rebuild your home to the exact specifications it had been built to prior to its destruction on a square metre basis regardless of the cost of doing so; or
  2. Sum insured: This policy would ensure that your home is rebuilt to a dollar value agreed to by the company and yourself. If in fact the cost of reconstructing the home to its previous state is not able to be completed because the cost runs over the sum it was insured for, the company is not bound to rebuild to any expense over and above the sum insured.

For obvious reasons the more popular policy for home owners throughout New Zealand has been Replacement.

Upon renewal of your home insurance policy or upon purchase of a new home your insurance company will usually now decline to offer to insure your home on a Replacement basis. Instead they will want to know a sum insured that is inclusive of every aspect required to estimate an accurate rebuild cost. It is absolutely crucial that you make your own investigations as how much the cost of rebuilding your home will be otherwise you may find that the sum you have insured your home for is totally inadequate to account for the actual reconstruction costs.

Unfortunately it is almost impossible to accurately estimate the rebuild cost of your home without advice from an expert. Matters such as the gradient of the land your home is situated on; the year your home was built; floor area; materials used; construction and pitch of the roof; demolition and site preparation costs; driveways, pipes, culverts and drains; retaining walls; swimming pools, spas, saunas and recreation areas; engineering and survey costs together with local authority consent fees are all highly relevant to compiling an accurate estimate to rebuild your home to the exact specifications that it was built to prior to destruction.

To obtain this information you will need to consult with an engineer and/or a licensed building practitioner and/or a quantity surveyor and/or a registered valuer.

It is strongly advised not to use your rateable value as a sum insured figure because this will almost always be insufficient in terms of the actual cost to rebuild your home.

So it’s a double whammy really; it is now much more expensive to insure your home in terms of the cost of the policy alone, but also the costs of obtaining an accurate rebuild figure to nominate as the sum insured must be taken into account as well.

Disclaimer: this is not legal advice but merely a guide. Anyone renewing or taking out a new home insurance policy should obtain their own individual and specific legal advice.