House and contents insurance

Updated 04 Sep 2013
12jun-h&c-hero

Introduction

Insurance companies are changing the way they calculate house insurance premiums but it’s still important to shop around.

We asked 13 insurance companies to provide quotes for 4 consumer profiles at various locations. We assessed their house and contents insurance policies and over 300 quotes to find the best deals.

Although premiums are changing, our picks for each profile offer a combination of good cover and good price.

How insurance works

 
A flood

House insurance

This normally covers every domestic building on the property, including the house, pool, garage and fences.

Accidental damage is the most common type of cover. It insures you for everything not specifically excluded in the policy, such as wear and tear. This is the type we look at in this article.

Defined risk policies are less common. They cover you only for the risks specifically listed in the policy, such as fire or burglary. Many insurers offer only defined risk policies for holiday homes or rented accommodation.

With an accidental damage policy, you get a choice of replacement policies.

  • Open-ended replacement cover will replace your house irrespective of the cost. Previously this was the most common type of policy, but most insurers are now switching to "sum-insured".
  • Sum-insured replacement cover will replace your house up to a specific dollar amount, as stipulated in the policy. You have to tell the insurance company what you calculate it will cost to rebuild your house and other structures on the property – and this is the maximum amount the insurer will pay out.

    It is important that you have enough cover because you don’t want to be underinsured. The maximum insurance companies will pay is the sum insured. If the rebuild costs are more than the sum insured, you will have to meet this cost. See Sum insured house insurance for more information about the move to these policies.

Contents insurance

This usually covers your belongings when they are at home or temporarily moved elsewhere in the country.

The policies have a mix of replacement and indemnity cover. That is, they provide replacement cover for certain items, such as the furniture and carpets, with indemnity (market value) cover for many other things. Indemnity cover on a 5-year-old leather jacket means that if it is stolen, you'll receive a cash payment based on the original value minus an amount for depreciation.

Often, there's an overall sum insured. Most policies have maximum payout limits for specific items like jewellery. Items over this value must be separately detailed in the policy. You can usually specify individual items in your house and contents policy – or pay for special optional benefits (some companies also offer policies with higher levels of cover or different excesses).

Our survey looked at “standard” policies. But it always pays to check the cover: what’s standard in one policy may be an optional benefit in another – or may not be covered at all. This includes credit cards, jewellery, keys and locks, professional tools and equipment kept at home, and items damaged during cleaning.

Remember, some insurance companies require a valuation certificate for items over a certain amount. Getting a valuation for rare or valuable items is a sound idea.

Government levies

Your insurance premium includes a levy that goes to the Earthquake Commission, a government agency that provides EQCover.

The contents is covered on the same basis as your insurance policy. Items with replacement cover have replacement EQCover, the rest is indemnity. Because EQCover maximums are too low for many people, insurers usually offer top-up cover as part of their standard policies.

See Natural hazards for more about EQCover.

Excesses

The excess is the amount of each claim that you must pay yourself. Most “standard” excesses range from $100 to $300 for contents and $150 to $400 for homes.

Insurers often increase standard excesses depending on claims history, location and age of the house, the likelihood of its being damaged, and whether it’s tenanted, shared with flatmates or used as a holiday home.

Some of our recommended policies charge higher standard excesses but offer cheaper premiums. Companies also offer “extra” excess options – these give a substantial premium discount for paying a higher excess.

Some insurers offer excess “refund” options. This means that if your claim is greater than the excess refund, they pay the entire claim and don’t deduct the excess. Excess refund options start at $500 for Kiwibank, Tower and TSB.

Tip: You can lower the cost of your premium by choosing a higher excess (which means you carry some of the claim risk yourself). See Ways to save for more information.

Making a claim

Before you make a claim, read your policy and gather your facts - in writing if possible.

You should keep written records of all conversations including names, dates, times, and details of what was agreed.

You can also take a look at the Fair Insurance Code on the Insurance Council's website. The code applies to all insurance policies bought directly from companies belonging to the Insurance Council, or through a broker or agent. This sets out member companies' responsibilities to you and how to complain if companies don't carry out their responsibilities.

What if you're turned down?

Complain. It may be that your insurer has misinterpreted the facts. What's more, if there's a grey area then a complaint might just push your insurance company to pay out.

One term well worth knowing is: "ex-gratia". It means "out of the goodness of my heart". When the insurance company makes an ex-gratia payment, it pays out but doesn't accept legal liability for the claim. These are cases where it's probably cheaper for the insurance company to pay a bothersome client than to fight the case through the courts.

Unless you can resolve the dispute easily, you'll need to send a formal complaint to the insurance company. A form for this can be downloaded from the Insurance Ombudsman's website.

Our Letters that Get Results may help you if your claim is turned down. These include the following:

However, there are times when arguing with the insurance company will get you nowhere. In that case, you may want to take your claim to the Insurance Ombudsman. You'll need to get a "letter of deadlock" from the insurance company, so that you can then lodge a complaint with the Ombudsman.

Prevention is better than payout

Perhaps the best way to avoid being turned down for a claim is make sure you don't have to make one in the first place. One of the best preventive measures you can take is to keep your house well maintained.

Consumers are often shocked to find they are not usually covered for rotten walls, floors or cupboards. This type of damage, which occurs gradually, is limited or excluded from policies. Yet it is one of the biggest causes of house and contents claims.

Burglary

Despite its prominence in the media, burglary isn't the main cause of loss - although you're likely to suffer a greater loss from burglary. To reduce the risk, record the serial numbers of your possessions and photograph your valuable items.

Burglars are deterred when there are stickers on the house saying serial numbers have been recorded. You can find out about this from the Insurance Council's website, including a downloadable serial-number recording form. Serial numbers and photos make claims processing much easier.

Canterbury still waits

The Reserve Bank has estimated the total cost of insurance claims for the Canterbury earthquakes at $30 billion. Insures are still working their way through related earthquake claims. 

Canterbury earthquake claims from all the insurance companies in our survey are either underway or settled. IAG and Tower will have settled the majority of claims by the end of 2015. 

See our separate report for how our members rated their Christchurch earthquake insurance claims experiences.

Natural hazards

 
A slip

Anyone with home and contents insurance is also covered for most unexpected events by either their insurer or the Earthquake Commission (EQC).

EQC cover insures your house against loss or damage up to a maximum of $100,000, personal effects up to a maximum of $20,000, and either the value of land or its repair cost (whichever is lower). You can arrange to get greater or less cover through your insurer.

You're covered against earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunamis, and fires resulting from these natural disasters. Your residential land is also covered by EQC against storm and flood damage.

EQC exclusions

One area where people are often exposed is if their property subsides. The EQC covers land moving sideways and downwards. However, erosion by the normal action of wind, the sea or a body of water is excluded.

Other EQC exclusions include jewellery, burglary or vandalism following an earthquake, and the cost of staying somewhere else while your home is rebuilt. Check whether your insurance policy covers some of these exclusions.

Tip: Check your policy to make sure you have adequate replacement cover from your insurer for the value of your house and contents if they are worth more than EQC's maximum limits.

Non-EQC-covered property
Fences, driveways, paths and swimming pools aren’t covered by EQC and most insurers in our survey now apply a $5000 standard excess if these items are damaged in a natural disaster.  AA Insurance is an exception; it only charges its standard excess of $300.

One of our members had her driveway damaged in the September 2010 Christchurch earthquake. The driveway still wasn’t fixed when the February 2011 earthquake happened. While some of the same area of the driveway was damaged further by the new earthquake, there was also new damage to other parts of it (and also to the house).

Our member’s Tower policy had an excess of $500 for driveways. Tower – like most insurers – applies an excess for each insurance “event”. Because these earthquakes were counted as separate events, she had two excesses applied against her policy.

The companies we surveyed said that usually you wouldn’t have to pay a second excess if the area damaged by the second event was already damaged by the first event. But where the second event caused new damage, then that damage would probably attract a second excess.

Flooding and storms

One of the biggest misunderstandings between insurers and homeowners is over the word “flood”. Every year many thousands of Kiwis find water damage to their homes and properties, which they think is caused by a “flood” but is actually the result of slowly leaking water from outside or from water pipes.

A burst pipe might be classed as gradual damage if it’s simply worn out from continuous use. Sometimes the resulting damage will be covered – but don’t assume it is.

Even when it’s a real flood from a storm or burst pipes, you need to be wary. If you haven’t told your insurer about previous floods you may not be covered. And don’t increase your cover when the floodwaters lap into your home, as one homeowner tried. The insurance company later tracked down regional-council aerial photographs that showed the house was already being flooded when the call was made.

Tips: Some policies contain limited cover for gradual damage caused by leaking internal water pipes but not for water that gradually enters the house from outside.

When buying a property, check the LIM report for natural hazards. If the LIM contains a Section 74 notice for a natural hazard, your insurer and the Earthquake Commission (EQC) may not cover you for damage from that particular cause.

For more information see also our separate Natural disaster insurance report.