Insuring your home seemed to be an easy task. You’d ring up an insurance company, they’d tell you what your home is worth and then you’re covered. If you make a claim, they pay up and you can repair or replace your home exactly how it was. But wait, because just like an infomercial, there’s now more to it.
One-Third of Kiwi Homes May Be Underinsured
From 2013, insurers began to implement ‘Sum Insured’ into their new and renewing policies. This meant most homeowners moved from a total replacement policy based on the size of their buildings, to an agreed value. A direct result of the 2011 Canterbury earthquakes, the introduction of Sum Insured policies will means up to one-third of New Zealand homes may be underinsured according to the NZ Banker’s Association. Other industry experts say that it may be closer to 85% of properties being underinsured, especially high-spec and recently renovated properties.
Why is this the case? Insurance companies have used calculated a ‘desktop’ valuation or rebuild cost for a home, which may not reflect any improvements, character features and the increase of the building’s footprint. This would result in a rebuild needing to be smaller than their existing home, due to a lower claim amount being paid to the owner.
Owners Must Check Home Insurance Policies
First up, you will need to check your home insurance policy. Your home Sum Insured policy must clearly identify the amount payable to cover the full rebuild costs of your home and other buildings. This is important because the Sum Insured is the maximum amount the insurer will give you, even if it costs more to rebuild your home back to how it was.
Secondly, you need to find out for yourself what it will cost to rebuild your home as it is currently. This means calculating the Sum Insured for yourself, not relying on one given to you by an insurer. You can do this in a couple of ways:
- Use an independent calculator tool, such as the one created by Cordell
- Hire a licensed builder, quantity surveyor or architect to give you an estimate of rebuild costs
- Have a registered valuer value your home for insurance rebuild purposes
It’s important to remember that your Sum Insured is not the same as your rateable value or RV. An online calculator or a ‘desktop’ valuation is also not the same as having someone visit to create an actual cost of rebuild. While it may seem annoying to have to pay for a rebuild valuation, if the worst happens, you know you won’t be short-changed. Head over to read our article about checking if your home is fully insured for more information, or get in touch and we’ll have a chat about it!