The top 5 mistakes to avoid when insuring property
Buying a home or property is a large part of the classic Kiwi lifestyle, and it tends to be the biggest investment most Kiwis will make in their lifetimes. When it comes to arranging house or landlord insurance, New Zealander’s want peace of mind for their asset – and so some property owners will seek advice from their insurer. However, others don’t – and those investors remain unaware of these avoidable insurance pitfalls. We’ve put together a list of the top five mistakes people make when purchasing house insurance, so you can avoid making them too.
Key takeaways
- Reducing your sum insured to save premium can leave you underinsured if you need to rebuild your property after a major loss.
- Property owners need to understand their home’s likely replacement cost, as insurers do not know every detail of a property and are not valuers or quantity surveyors.
- When calculating replacement value, property owners should consider improvements and site features such as driveways, fences and pools.
- Choosing the right excess depends on how much financial risk you are comfortable absorbing and whether you would claim for smaller losses.
- The cheapest policy is not always the best option, and the most expensive policy may include features that are not relevant to your needs.
- Property owners should understand what their policy covers and remember that insurance is not designed to cover every possible loss, such as maintenance issues, gradual deterioration or some types of renovation risks.
- Landlords need to ensure they have the correct type of insurance, as a homeowner policy may not provide cover for tenant-related damage.
On face value, it seems to make sense: reduce the sum insured to pay less premium. You could justify this by calculating the odds of having a total loss are slim… but therein lies the issue: what if you do have a total loss? Would you be able to rebuild the house (and its site improvements, such as driveways and fences) if the insurance proceeds were less than you needed? House insurance is about getting you back on track – replacing like for like, and ultimately, saving you from financial ruin by properly protecting your home and investment. When calculating your sum insured, you need to know you’ll be covered in a worst case scenario. If you are wanting to save on premium, insure the house for its correct replacement value and consider a high excess; which means you’ll still be covered for the big stuff while also saving money on your premium.
2. Not knowing the replacement value of the property
Some property owners assume that insurers know how much it will cost to replace their home. The reality is that while an insurer might provide a guide they don’t actually know your house like you do. Insurers and brokers are not valuers or quantity surveyors and they are not materials cost specialists. When you get an instant quote from initio, the sum insured is based on a standardised per square meter rebuild cost, but it’s important to know that all houses are different as some will cost a lot more than this, and in those cases the sum insured should be increased. It is also important that the property owner or landlord takes account of improvements such as driveways, fences, and pools when calculating the replacement value.
initio guides you to tools, such as online sum insured calculators, to assist property owners with calculating their rebuild value. If you’re still unsure, or you want to be precise consider engaging a quantity surveyor such as Construction Cost Consultants.
3. Not choosing the right excess
A large number of property owners are happy to avoid the claims process by not claiming for smaller losses, and just repairing or replacing low-value losses themselves. If this is you and you have a low excess (of say, $400), we recommend increasing this to $1,000, or even $2,000 to save money on your house insurance premium.
If you wouldn’t bother claiming for anything less than $1,000, why would you waste your money insuring it?
On the flip side, if you wouldn’t be comfortable contributing the first $2,000 each time you claim, then a lower excess will be best for you. It’s certainly personal preference but we encourage property owners to think about their own financial risk tolerance when purchasing house insurance. Remember that under initio’s landlord insurance policy the tenant is only responsible for covering the excess on careless damage claims, so don’t assume they will be paying the excess every time there is damage at your rental property.
Ask yourself; “How much of a dent to my cash flow am I able to cover myself?” This amount is what your excess should be.
4. Choosing the cheapest (or most expensive) policy
Cheap doesn’t necessarily mean good. To ensure your home insurance adequately protects your most valuable asset, you need to make sure that you have the right cover. If for example, where the property is tenanted, an own homeowner’s insurance policy won’t cover you for damage caused by tenants. By the same token, the most expensive policy isn’t necessarily the best either. You could be paying extra for a brand name, its marketing budget, or bells and whistles that are simply not relevant to your to situation and requirements (such as ‘hole in one’ compensation…), or you could be unknowingly paying a middleman to just clip the ticket.
It is recommended that you take the time to understand what you are getting for your money. A good place to start is your insurance policy wording. initio has recently launched a policy comparison tool on our homepage to makes things a little easier for the customer when deciding on their house insurance.
5. Thinking that house insurance should cover everything
There are some losses not covered by a house insurance policy. Some of these are un-insurable, like leaky house syndrome and acts of terrorism. Other risks might require an additional policy, such as a contract works policy if you are doing renovation work (removing the roof or exterior cladding for example). Gradual things like wear and tear are not covered either; an insurable loss needs to be caused by a sudden and accidental event; insurance is not designed to pay out every time the property needs maintenance work done or a tenant leaves the house messy and worn. These things are just part of the risk parcel of being a homeowner or landlord. Consider that if your policy covered every possible loss, the annual premium would be tens of thousands of dollars.
Remember, your insurance policy needs to work for your own peace of mind, so make sure you consider what risks you want covered, and what risks you are comfortable absorbing – keep the above tips in mind when making this decision.
Frequently asked questions.
Does my insurance provider know how much it will cost to rebuild my home?
No. While insurers may provide tools or estimates, property owners need to consider the specific features of their own home. Insurers are not valuers, quantity surveyors or construction cost specialists.
How do I choose the right insurance excess?
Your excess should reflect how much you are comfortable paying towards a claim. If you would generally cover smaller losses yourself, a higher excess may help reduce your premium. If you would struggle to pay a larger amount after a claim, a lower excess may be more suitable.
Do landlords need different insurance from homeowners?
Yes. A standard homeowner policy may not provide cover for risks associated with renting out a property, such as tenant-related damage. Landlords should make sure they have appropriate landlord insurance.
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Written by Megan Fisher. Initio’s Head of Marketing
Megan has been with initio since 2022 and creates customer-focused content that helps New Zealand homeowners and landlords understand insurance in plain English. She works closely with initio’s claims, customer support, and development teams to make sure content is accurate, useful, and easy to follow. She has more than 20 years of experience in marketing and product strategy.