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Is my house insured for fire?

Unlike some countries, New Zealand homeowners receive automatic insurance cover for fire with a house insurance policy.  This article simplifies what fire insurance is and how it works.

Initio’s first fire claim, back in 2012, was caused by a couple of 5-year boys playing with matches in their mum’s wardrobe.  Fortunately, no one was injured – but the damage to the house was extensive.  Insurance companies generally don’t have minor fire claims, and while a house may look intact after a fire, the smoke contamination and water damage (from the fire brigade) more often than not render a house uninhabitable and a total loss.

Kiwis are good at getting insurance

New Zealand has one of the best rates of insurance coverage in the world.  We are 4th in the global rankings of insurance penetration.   This means that, as homeowners,  we see the value in insurance and compared to other countries we choose to insure our houses (and other assets) more often.  What Kiwi’s are not good at is getting the correct level of insurance, and this probably comes down to our overall attitude to risk which goes something like “She’ll be right”.

Following the Christchurch earthquakes, almost every insurer changed from insuring houses for full replacement based on size (e.g. 150 square meters) to insuring the house for a specified replacement sum insured.  This put the onus on the homeowner to choose a sum insured that reflected the replacement value of their home – and this in itself is a complex exercise.  This resulted in the homeowner having a house insurance policy in place for less than it would actually cost to rebuild the house.

So, what is the rebuild value of a house?

Many homeowners confuse the rebuild value of their home or rental property with its market value.  These are two very different things and are completely unrelated.   The market value is what a property would sell for in the current market, whereas a rebuild value is a cost to replace the house and its site improvements.

Given that fire generally results in a total loss to the house, getting the rebuild value correct, and aligning this with your insurance is essential.  It is also important to factor in the cost of demolishing the home and preparing the site, the clean-up costs after a fire cost at least $40,000 (even more if there is asbestos).  Learn more about calculating your replacement value here

Causes of house fire

The most common causes of a house fire are:

  1.  Electrical fault
  2.  Electronic equipment
  3.  Cooking fires
  4.  Fireplaces

Many fires can be prevented, or at least brought under control early if a fire extinguisher was available.  Unfortunately, unlike fire alarms, extinguishers are not mandatory.

What about older homes, do they burn down more often?

The earliest wiring in New Zealand was cloth-wrapped rubber insulated in metal conduit. It was designed for a very small number of power outlets. In the 1930’s rubber wrapped wiring (with an earth wire) was used without conduit. This wiring deteriorated as the rubber insulation perished and became brittle.   Many homes would have been rewired in the 1950’s and 1960’s with PVC or early versions of TPS wiring. This is also known to deteriorate over time, and wasn’t designed to be covered by insulation.  This is why older homes have a higher incidence of fire than new houses.

Homes today have more lights, electronics, gadgets, and appliances (including some that are permanently on standby) than anyone from the 1900’s could ever have imagined. The original wiring was not designed to handle this load and was not built to last.

Fire levies, how does that work?

The New Zealand Fire and Emergency Service is funded almost entirely by the levies included as part of asset insurance.  This money funds the fire stations, the employees, and the fire appliances that respond to house fires.  House insurance includes a levy of $146 inc gst per living unit.   Your insurer will collect this levy as part of your insurance cost and will then pass this on to Fire and Emergency Services on your behalf.  It is important to note that the fire service does not discriminate between payers and non-payers (insured and uninsured)  – meaning that if your house is on fire and you are not insured the fire service will still turn up and get your house fire under control.

How long does it take to rebuild a fire damaged house?

Do not under-estimate the amount of time it takes to rebuild after a fire.  You will be waiting for at least 3 months for fire investigators, assessors, engineers, builders and environmental consultants to complete their reporting. and cost estimation.  If your house is suspected to have Asbestos then the process will take even longer while professionals confirm that the property is safe.  The next step is compliance which means delays on consents with council – adding further time to the process.  It could take as long as 6 months before re-construction starts, and depending on the complexity of the build at least 4 months of construction through to completion.   If you are a landlord it is important that your landlord insurance policy has loss of rents cover – which will compensate you for the fact that the tenant has left the property and is no longer paying rent – this could be important if you have a mortgage on the property.  If it is your own home that has been fire damaged and cannot be lived in (which is almost a certainty after a fire) then you will be wanting your home insurance policy to have an alternative accommodation clause; meaning the insurer will pay the costs of your renting another property while your home is being rebuilt.

Tips for making sure you will survive a fire loss to your house:  

  • Do not under-estimate the cost of fire damage
  • Work out the re-build value of your home and update your insurance policy.   There are tools to help you calculate this value
  • Fire damaged houses take a long time to rebuild – make sure your house insurance policy allows for this.

 

Learn more about the different types of house insurance:
Landlord insurance – all in one house and landlord insurance, including loss of rents, malicious damage & more.
Multi unit insurance – for serious landlords with multiple units under the same roof.
Holiday home insurance – for the bach and for holiday homes that are also rented out (eg Bookabach, AirBnB)
Home insurance – for your own home, and contents.