Insurance lessons from Christchurch
Dear Rest-of-New Zealand,
After three years of being rattled by insurance companies, we'd like to share a few tips about your insurance policy.
Most of all, Cantabrians would like you to get the document out of the bottom drawer and actually read it - because most of us never did. You've now got the opportunity to check what you are covered for and to fix things up if you've overlooked any areas (although don't be surprised if the insurers don't let you correct any mistakes until after the 'freeze' is lifted).
Replacement policy: Policies are currently going through a change to 'sum insured'. But if there's another shake in Wellington or Napier or Southland in the next few months, some homeowners may still have the old full replacement policies. That's generally a very good thing, but they aren't without their fish- hooks.
Check the size of your house: The square-metre size of your home will be listed on your policy. Do you have plans from when it was built, or have you relied on information from the council? As a homeowner you are responsible for the accuracy of the number.
Extensions and multi-storey: If you live in a two-storey house, make sure it's not just the ground floor that has been measured. If you've had an extension, has it been added on?
Decks and pools: These are expensive items. Ring your insurer and make sure they are covered.
Sum insured policy: By forcing homeowners to name a dollar amount on their policy, insurers cap their liability and can keep premium costs in check. As homeowners we must accept it's our responsibility to find out the replacement value.
If you forget to name a sum insured, your policy may have a fall-back. For example, with Vero, you are covered up to $2000 a square metre. For houses on some hills, that won't go far. Remember a sum insured will have to cover demolition and all the professional costs.
Quantity Survey: This is the only accurate way to value the rebuild cost. It will set you back approximately $500-$1000 for a simple flat-land home and as much as $3000 to $4000 for a more complex hill home with features like a pool. It might sound like a lot but it's incredibly easy to under-estimate your rebuild cost by 10 per cent (a $70,000 mistake on a $700,000 house).
While housing companies can provide cheap flat-land options, it won't be so easy for some to use these. A rebuild has to meet all the new engineering and building code requirements on your hill section.
Sure, you can downsize and economise on the fit-out if you under-estimate things, but that won't help much if you need an expensive foundation solution.
Inflation: Insurers will generally increase your sum insured each year, but they make no promise that it bears any relation to rises in construction costs. No-one will pay for an annual Quantity Survey of their home, so it just becomes a case of keeping an eye on the dollar amount and applying a best guess. Online rebuild calculators such as need2know.org.nz may help.
Demolition: You will need to pay for demolition from your sum insured. Many Cantabrians live in bungalows on flat land, so demolitions have been carried out for $10,000 to $15,000. Add a hill into the mix and you can throw that out the window.
And if the refuse station is miles away, costs escalate. As an example, a 130-square-metre home on a gentle slope in Akaroa (Banks Peninsula) cost $40,000 to demolish (and all three quotes were at that level). On the Port Hills of Christchurch, we've seen larger hill homes costing $70,000 and more.
Exclusions: Christchurch policies now have clauses where the first $10,000 of damage to a fence, driveway, path or pool in a natural disaster, is covered by the homeowner. In other parts of New Zealand a $5000 excess has come into play. Remember, excesses apply to each event and multiple quakes can start doubling up the excess.
Contents policy: Make sure expensive items are listed on your policy. One Cantabrian I know had a $4000 mountainbike squashed under a retaining wall, but hadn't listed it, so it was only insured for $3000 (OK, you guessed correctly, that was me - even those of us in the financial industry make mistakes).
Accommodation allowances: Check how much is provided in your policy. Cantabrians will confirm that rents skyrocket in a natural disaster. Policies vary dramatically. Some have $20,000 of rent covered, others have $50,000.
Retaining walls: Oh, what a struggle these have been in Canterbury, and such a small proportion of us live on the hills compared to Wellington. EQC covers the written-down value (indemnity) of retaining walls, but some policies such as Vero's now state they'll cover these for up to $50,000 (but it comes out of your sum insured).
Unfortunately, using indemnity values, many people will be severely out of pocket if they need compliant walls back in place to get engineering sign-off.
What you paid for your home often varies greatly from the cost to rebuild it and old retaining walls are often not reflected in the market value of a home. That's why a Quantity Survey is so important for hill homes.
Photograph your home, retaining walls and driveway. With insurers a little prone to claiming cracks and damage are wear and tear from the past, keep the photos on file.
Janine Starks is co-managing director of Liontamer Investments. Opinions in this column represent her personal views and are not made on behalf of Liontamer. These opinions are general in nature and are not a recommendation or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.