Traps to avoid

10 things you need to know about your household insurance policy:

1. Fraud doesn't pay

It may be tempting ... but little white lies can result in a claim being declined. The company may appoint an investigator if some of the information it receives doesn't add up or if an investigation is automatic for the claim type.

The Insurance Council of New Zealand (ICNZ) estimates that more than 15 percent of claims "probably have an element of fraud associated with them". It's fraud, says the ICNZ, if a claim is based on:

• facts that aren't true
• exaggerated losses
• non-disclosure of important information at the time the policy was taken out or renewed.

Tip: Insurers can check the history of claimants with the ICNZ's Insurance Claims Register. The register holds details of name, address, date of birth, and any previous insurance and claims.

2. “Legal” theft

“Malicious damage, vandalism or theft by anyone living in your home” is excluded from most house and contents policies. So usually is theft by people lawfully on the premises. Builders, friends, family, party guests and anyone else you invite on to your property – even a door-to-door salesman – are there legally.

Tip: Always keep valuables out of sight and preferably locked away.

3. Jewellery limits

Unspecified jewellery cover is usually limited to a sum such as $2500 for individual items, and the total amount of jewellery cover may also have a limit.

Some jewellery may have great sentimental value. When it's lost you may not want a replacement, just cash. But that's not how contents policies work: the insurance company has the right to have the jewellery remade.

Tip: Colour photographs, valuations, original receipts and detailed descriptions of the metals and gems makes it much easier to get a fair settlement.

4. Mobile phones left unattended

Many claims for lost mobile phones are declined because phones were left “unattended”. Insurers expect you to take “reasonable precautions” to avoid theft, and limit their liability if you don’t. Their view is that you should take reasonable care of your property rather than rely on insurance cover.

Tip: The word “unattended” is subjective. Argue the case if your claim is declined.

5. Older children may not be covered

In many cases children's belongings are only covered if they "normally live with" the parent who has the policy. Failing to declare your children's criminal convictions - including when you renew the policy - also leads to claims being turned down.

Tip: If you have kids away studying take out a separate contents insurance policy for them, including public liability cover. 

6. Goods stored or in transit

These aren't necessarily covered by your contents insurance policy.

Tip: Check before moving if your goods are covered to their full value by the mover or by your house and contents policy. If they're not, take out separate removal cover.

7. Business equipment at home

Working from home may mean the cover for your personal equipment under your home contents cover is limited because you're using it for "business purposes". "Business" doesn't just mean self-employment. It means any working from home even if you're not being directly paid for it.

Tip: Other tools of trade such as builders' equipment may not be covered by your home contents policy - especially if they belong to your business.

8. No building consent

If you don’t have a building consent, your insurance policy won’t pay out if the building work is the cause of a claim. For example, if you got electrical work done without a permit and it sparks a fire – your policy won’t cover the resulting damage. The same applies if you install a woodburner without a building consent and it causes a fire in your house.

Even if a house is destroyed by another cause, the insurer won’t pay for reinstating any building work done without a consent or for getting new consents.

Many people also get caught by policy exclusions for “fixing any fault, defect, error or omission in design or specification”. An insurer declined a claim for a failed retaining wall because the wall had been incorrectly constructed.

Tip: Check with your local council before you get building work done. There’s often confusion about what needs (or doesn’t need) a building consent.

9. Contract-works insurance

The Insurance & Savings Ombudsman gets cases every year where homeowners have invalidated their house insurance because they were getting work done on the property. Always take out contract-works insurance for building projects or get it as an extension to your house policy. Insurers say there’s additional risk from a building project – and we agree.

Tip: You may not need contract-works cover. But it’s best to find out by asking your insurer.

10. Get it in writing

Many claims are declined by insurers for non-disclosure of material information even though the homeowner swears they’ve disclosed X, Y or Z to the company. That’s because there may be no written record. Sometimes the insurer cancels the policy once it knows more about the risk.

Tip: Make sure you read the policy and any information from the insurer about what was said when the policy was arranged. Also email to your insurer your notes from conversations, to be kept on file.