Buying a house - what insurance do I need?
When you think of the time, effort and money involved in buying a house, it makes sense to protect it. That's where insurance comes in - but where do you start?
Generally, the only insurance you are required to have when taking out a mortgage is insurance for your home itself, says Jonathan Beale, ASB general manager wealth and insurance advisory. The rest is customer choice.
"For example if there is an earthquake or your house burns down or a truck drives into your home, it will be replaced through your insurance policy. Also, there are other benefits included in your policy such as accommodation costs if your home is not fit to live in."
The way homes are insured has changed in recent times.
Previously, most homes in New Zealand were insured for actual replacement, which meant in the event of a total loss, homes were rebuilt to the original size and style.
Now, homes are insured for sum insured replacement. This still covers the replacement of your home, but requires customers to specify a total sum insured amount. That is the maximum amount payable in the event of a total loss (e.g. fire, earthquake).
The sum insured amount needs to also cover the replacement of other structures such as decks, driveways, fences, tennis courts and any other additions within your property. It is important to also include any professional fees required for demolition and removal of debris.
"It's now the customer's responsibility to indicate the suminsured amount the house is to be insured for, so make sure the value you provide is accurate," Beale says.
To help estimate the likely cost of rebuilding your home visit need2know.org.nz. This sophisticated online calculator estimates a suminsured value based on a wide range of information about the home provided by users.
If customers still have concerns about the accurate amount, Beale recommends consulting a professional on the rebuilding cost.
"It is great to have insurance, but it is equally important to have the right amount of insurance," Beale says.
You also need to understand what you are covered for.
"Policy documents are produced, but you need to read the policy document to fully understand what you are covered for. Or more importantly, what you're not covered for."
Beale also recommends finding an insurance company that has a strong claims record and a strong brand name. The cheapest insurance is not always the best insurance. You want to make sure the company has a history of paying claims and paying them on time.
Go for quality, Beale says, and look for a company that has an AA-Standard & Poor's rating.
Although not always necessary when taking out a mortgage, there are other types of insurance which will help mitigate your risk when taking on debt. These include life insurance, mortgage protection, income protection and contents insurance.
Finally, Beale recommends not overstretching yourself when it comes to buying a house.
Although you might be able to meet the minimum mortgage repayments, you also need to take into account the interest rate and payments needed for insurance that you have. Costs of owning a house can be vastly different from renting.
* Insure your home and know what your policy insures you for, or more importantly, what it doesn't. This will allow you to repair or rebuild your home if anything happens.
* Decide on the type and term of your mortgage so you can factor in the costs of insurance from the start.
* Cover your income - ensure that in the event you become disabled or sick and cannot work or earn an income for a period of time, you can continue with mortgage repayments and the associated costs of owning a house.
* Protect the people who live in the house. Life insurance should allow the family unit to stay in the house if anything were to happen to you.
* Take pictures of possessions and keep a record of what you've got. This is a great way of helping make the claim process much easier and swifter.