Kiwis taking miscalculated risk with sum insured
10 September 2019
On the second day of Money Week, homeowners are being encouraged to check their sum insured to avoid a double shock should disaster strike.
Many Kiwis may struggle to rebuild the family home due to miscalculating the true cost to rebuild their property and setting the incorrect sum insured – the level of cover which the home is insured for - on their home insurance policy.
The message comes from IAG New Zealand, leading general insurer and home of AMI, State and NZI, as part of Money Week 2019.
Customer feedback has shown many homeowners are not reviewing their sum insured as often as they should be, says IAG’s Home & Contents Portfolio Manager Brendan McGillicuddy.
“We would recommend homeowners take the time to consider their sum insured not just when they take out a policy or at renewal time, but whenever there are significant changes made to their home.”
Why would the sum insured be wrong? “There are many reasons, such as the cost of building materials rising or not allowing for demolition costs if the home is unable to be repaired and needs clearing,” Mr McGillicuddy says. “We’re finding that homeowners are being caught out by the cost of meeting new regulations and compliance requirements, usually introduced sometime after the home was originally built.
“The cost to rebuild is an important thing to understand. It’s not the same as market value or rateable value. We really want people to know these concepts are not the same.”
Recent data from QV has drilled into this issue, showing the cost of construction in New Zealand’s main centres has increased more than 30 per cent over the past 10 years. Over the same decade, the price of land soared 50 per cent, labour costs rose 17 per cent, and plasterboard, cement, and concrete products kept pace with inflation at 13 per cent. House prices rose 57 per cent.
“Anecdotally too, we’ve heard homeowners won’t regularly review their sum insured as they mistakenly believe increasing cover will result in dramatically higher insurance premiums,” he says. “We want to debunk this myth and let Kiwis know that this is not the case. For example, adding an extra $100,000 to your sum insured will result in an increased premium, but not as high as homeowners may fear.
“We’re concerned for these Kiwi homeowners who, should disaster strike, may be left with a funding shortfall and may be forced to reconsider their rebuild options.
“Research is key,” Mr McGillicuddy says. “Questions you should ask yourself include: what materials were used to build your house, where is your property located, is it on a hill for example, and what special features does your house have, such as a retaining wall, pool or shed. All of these things make a difference to the cost to rebuild.
“It’s another task on the list for homeowners, who have plenty to manage during their busy lives, but help is available,” he says. Each of IAG’s brands has a sum insured calculator available online, which draws on profile information of the property and is one tool that can support homeowners to determine the appropriate level of insurance cover.
“We strongly recommend that, at least once a year, homeowners review their sum insured as costs will change, with inflation and market drivers to consider. It’s time well spent to understand what you are covered for and what your sum insured includes so homeowners can be adequately covered if the worst was to happen.
“Of course, the most accurate way to make sure your house is insured for the right amount is to get it professionally valued. I suggest you do this if you want complete peace of mind, or if your house has special features,” Mr McGillicuddy says.
“At the end of the day, what you insure your house for is your decision as the homeowner, so you must know your home inside and out and that you have calculated the cost to rebuild correctly.”
Unsure if you need a professional valuer? Things to consider include:
• If your home is over 300m2 in size, with IAG strongly recommending a valuer if your house is more than 500m2,
• If your home is worth more than $2 million or,
• If your home has special features, such as a retaining wall, pool or tennis court.
Money Week an initiative by the Commission for Financial Capability to increase education and awareness of money matters across Aotearoa. Today (September 10) is Insurance Day, with a special event taking place at AUT Manukau campus. Insurance representatives will mentor 40 primary school-age children to help them learn about insurance and risk.
There are several resources available to Kiwis who need support at the Money Week website, including a savings calculator, budgeting tools and goal-setting booklets.