We explain the basics about house and contents insurance.
House insurance covers most structures on your property – your house, garage and fences.
Most policies also cover your retaining walls and recreational features (for example, swimming pools) but the cover is often capped. You can increase these caps for a higher premium.
Some insurers offer different types of policy with different levels of cover:
Basic policies may only cover you for major adverse events such as fire, theft or flood.
Comprehensive policies are what we surveyed. They cover you for major adverse events and for accidental damage to your house caused by you or your family.
Both types of policies cover your legal liability if you accidentally damage someone else’s property.
See our policy comparison database for cover details for the policies we surveyed.
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 and "Sum insured", below, for more information about these policies.
Contents insurance usually covers your belongings when they're at home or temporarily moved elsewhere in the country.
Contents insurance is also offered at different levels:
Basic policies may only pay the “present value” for your contents (the cost of repairing or replacing an item, so you’re left with something in the same general condition). Some policies only cover items damaged by defined events such as fire and theft. Others provide limited or no cover for items damaged while they’re temporarily removed from your home.
Comprehensive policies offer a mix of present and “replacement value” (that’s the cost of replacing the item or repairing it to an as new condition). They also cover your contents for accidental damage – not just defined events – in your home and while they’re temporarily removed.
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. See our policy comparison database for cover details for the policies we surveyed.
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.
If you make a claim against your house or contents policy, you’ll probably have to contribute the first few hundred dollars towards the repair or replacement. This is called the excess.
The standard excess for house and contents claims is between $250 and $400, depending on insurer.
You need to think carefully before making a small claim. As well as the excess, you can end up with a higher premium when your policy’s renewed. You can also lose your no-claims discount – and this discount can reduce your premium by as much as 40 percent, depending on your policy.
Tip: You can lower the cost of your premium by choosing a higher excess (which means you carry some of the claim risk yourself).
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.
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.
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.
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.
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 EQC may not cover you for damage from that particular cause.
The sum insured is the maximum amount your insurer will pay if your house is damaged or destroyed. Since the change to sum insured, homeowners have been responsible for estimating the cost of rebuilding their homes. If you haven’t specified a sum insured, you’re probably relying on the insurer’s default sum insured – an estimate based on the size of your house and a typical rebuild cost.
Most consumers have stuck with the insurer’s default sum insured. IAG, which owns AMI, NZI and State, says around 80 percent of its customers use the default sum insured. For AA Insurance and AMP, the figure is 75 percent and 60 percent respectively.
If you rely on the default sum insured, you risk being caught short if disaster strikes. In a mystery shop, we asked 5 companies to estimate the sum insured for a house in Auckland and Wellington. Every company quoted considerably above the default figure – up to $525,000 more in Auckland and $731,000 in Wellington.
If you choose a higher sum insured, you’ll be charged a higher premium. But it might not be much higher. According to AA Insurance, an increase of $100,000 may only add $40 to your annual premium. Ask your insurer how much an increase will cost. A slightly higher premium is a good investment to make sure your house is fully covered if it’s a total loss.
See Sum insured house insurance for more about this type of policy and using online calculators.