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Do you have the correct sums insured?
Many New Zealand homes are under-insured, which could lead to major issues in the event a rebuild is required. But checking whether your home is sufficiently insured is easier than you think.
New Zealand, like many countries, has experienced a sharp rise in inflation recently. As inflation continues to rise, your insurer will increase your sums insured each time your policy renews, linked to the Consumer Price Index (CPI) and associated indices over the preceding year.
With inflation high, your insurer’s adjustment to your sums insured at renewal this year will likely be much higher than in recent years. And as your sum insured rises, your insurance premiums will rise too.
Prices are also rising in the building sector. A combination of inflation, demand for builders, and a scarcity of materials has seen the average cost of building a standard three-bedroom house rise significantly – up 21% in the past year alone, according to QV CostBuilder.
This means that many homes are under-insured, which may lead to problems if you need to rebuild.
Is your home adequately covered?
Crombie Lockwood Personal Lines Broker, Anna Bourchier, says the risk of being underinsured is a significant threat to your home, exacerbated by a number of factors in what is a unique time. “With building shortages, it's getting harder to gauge the rebuild cost because materials are constantly either unavailable or at a higher cost,” she says.
Meanwhile, Metu Egelani, Crombie Lockwood Regional Group Broking Manager, adds that the cost per square metre of insuring a standard home to be rebuilt has risen significantly.
“Last year, the CPI adjustment on homes was around 3.5%; this year it’s 7%,” he says. “A few years ago, insuring your home with a rebuild value of about $3,000 per square metre may have been sufficient. Nowadays, even $4,000 or $5,000 per square metre might be light. This is why we stress the need for a valuation.”
Finding fit-for-purpose cover
There are a number of ways you can check if your level of cover is fit-for-purpose, including the Cordell Calculator, or obtaining a professional valuation.
The Cordell Calculator helps estimate rebuild costs for your home. It provides a more reliable assessment of your likely costs than an insurer’s CPI adjustments, as it uses information you provide on your home’s construction, features, and terrain.
“The price you’ve purchased your home for is not what you should insure it for,” continues Anna. “A lot of the value in a home is in the land, but you need to make sure you have enough cover to rebuild your home in the current market if you do need to claim.
“The Cordell Calculator helps with this; it’s a free and independent online tool that is available to the public. You supply your current home address and a lot of information is already pre-populated, and there are options to tweak the information.
Metu adds: “The Cordell calculator is only as reliable as information the client inputs. If you are unsure, getting an insurance valuation done by a professional is always recommended.
"A few years ago, insuring your home with a rebuild value of about $3,000 per square metre may have been sufficient. Nowadays, even $4,000 or $5,000 per square metre might be light. This is why we stress the need for a valuation."
Metu Egelani, Regional Group Broking Manager
What do inflation adjustments mean for me?
As costs rise across the board, many New Zealand households are under financial pressure, and are looking to reduce costs where possible.
When it comes time to renew your home insurance, you’ll be offered an increase in cover linked to inflation, which you can choose to accept or decline. While it may be tempting to decline the amended sum insured, this could mean you won’t have the level of cover you need to rebuild your home.
There are, however, other options to help keep your premiums at a manageable level, including selecting a higher ‘voluntary’ excess. By opting for a higher excess, you’ll contribute more in the event you need to make a claim, while reducing your premium.
“Once you start removing areas of cover under your policy, or not adjusting your sum insured for inflation, you're left with a product that's not going to give you the cover you need,” says Anna.
Anna says homeowners can also pay insurance premiums in instalments with Crombie Lockwood’s regular payments plan allowing for smaller, regular payments instead of an annual fee. It helps to manage budgeting and cash flow, making sure your home is protected.
Contact your broker to discuss which options are right for you or to find out more about Crombie Lockwood’s regular payments plan.
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Published July 2022