Bank home policies contain fish hooks
Don't assume all sum insured house insurance policies sold by the banks are the same. They are not.
And while some differences are relatively minor, others are not. It is up to the person buying the policy to compare what their bank is offering with the policies sold by others.
It is not an easy comparison to make. Policies are densely-written and laden with jargon, and while Westpac, ANZ and Kiwibank all have their policy documents online, those of BNZ and ASB have to be requested, or picked up from a bank branch.
Broadly speaking, all the policies cover the same thing - the home - but there are differences between the policies, and what they cover, including exactly what constitutes the "home".
For example, the ASB policy excludes coverage for "any part of the home that is used for business" unless it is rented out as a residential property, or is used purely as a clerical home office, unless again that part of the home is scheduled as a "special feature". This requires the policyholder to ask for it to be scheduled as such.
ANZ's by contrast, says all home offices, and indeed any part of the building used as a "health practice" are covered without needing special permission.
It's a minor difference, but it is a warning about the kind of fish hooks that policies can contain.
Kiwibank's cover, for instance, does not automatically include cover for underground and overhead services linking to the public mains, something the other policies do cover.
Another example is that some policies cover bridges where they provide driveway access, but others do not - again unless they are specifically scheduled.
Some policies can have benefits others do not offer, or they can pay out much less. For example, the ASB policy provides an accommodation benefit to pay for alternative accommodation, if a home is rendered temporarily unfit to live in, but it is up to a maximum of $12,500, less than half that of the ANZ policy.
In general, the bank policies have been created on a core-cover model with homeowners able to get cover extended for special features if their homes are not standard dwellings. That's a bit like the requirement to "specify" expensive items of jewellery in a contents insurance policy in order for them to be covered in full.
This core-plus bolt-on approach means that for very ordinary houses with short drives, and few features in urban centres, the bank policies are an easy sell.
"If your house is an ordinary one on a flat section with nothing strange about it and a short drive, then your policy will fit it, but if your house has any special features, you do need to take care," Auckland insurance adviser Chris Kerr said:
And as the banks see themselves largely as retailers, the ultimate decision on whether a policy is adequate lies with the buyer. However, Kerr said, customers are often focused on something else, like buying a home, when they sign up to a policy.
People read with certain things in mind, misunderstand some parts and do not know what their options are with other policies on the market.
"Policies are not easy to read," Kerr said.
That is, if buyers read them at all.
The Insurance Ombudsman says many policyholders appear not to read or understand their policies, so the idea of people shopping around and comparing policies may be pie-in-the-sky thinking.
Kerr said bank policies are underwritten by the ordinary insurers, so customers are getting the same policy at the end of the day. But banks will often take some of the "bells and whistles" out to make the product cheaper.
The reason for that, she said, was that the banks had to compete with the prices of the direct insurance sellers, and have to share revenue on each policy with the insurer. That means it can pay to see what an insurance adviser, who can compare policies from different insurers, can do for the same price.
For those who do embark on a shop around, it quickly becomes apparent that different bank policies have different levels of readability.
Kiwibank has the most readable fonts and highlights all terms which have specific meaning. ANZ arguably has the worst, most tightly-packed text, however, it does score points for including helpful diagrams of what is covered.
Sunday Star Times