How much are you really worth?

BY ROB STOCK

FAMILIES ARE shelling out hundreds of dollars each year for contents insurance, but anyone using insurers' calculators and guides risks over-estimating the value of their stuff.

The guides and calculators from the likes of AA Insurance, Tower, NZI and State are all designed to provide policyholders, and those considering buying policies, a starting point from which to decide how much their stuff is worth.

But they all provide different estimates of total contents value people should be covering.

Tower's online calculator, for example, suggests $81,355 is the "average" and $146,320 is "above average", though in the blurb accompanying the calculator, it appeared to suggest an "average" home could actually contain a lower value of items, saying: "The average New Zealand house contains more than $50,000 worth of possessions."

NZI suggests a "guide" value of $166,604 in its printed "Know your own worth" guide.

At State the average is $68,486, and "above average" $125,847.

AA Insurance calls "average" $67,800, and "above average" $188,610. Some even give rule-of-thumb guides to the lazy, such as Tower's suggestion that "your minimum contents insured should equate to 40% of the replacement value of your home".

John Grant, insurance researcher for Interest.co.nz, says that means anyone using insurers' tools could find themselves over-insuring – they might fall well short, for example, of having items with an insured value of $21,500 in their lounges, as NZI's printed guide suggests.

In part that's because many policies, like NZI's Householders cover, provide replacement cover for only some items, while others over 10 years' old are covered for only "market" value, the sum they'd fetch if sold secondhand. Some items, like clothes and computers, are also covered for only their market value.

Grant said: "Are people insured for the right amount, or are they paying more than they need to? I think a lot of people have set it incorrectly in the first place, so there will be a large proportion of people who are underinsured and a portion of people who are overinsured.

"If someone did the the job using one of the calculators, they could end up substantially over-insured."

Many people's contents cover levels did not closely match their possessions, as cover was often renewed without checking.

Underinsurance is a bigger problem, say insurers.

Mary-Jane Daly, executive general manager at State, said: "Our research also shows that around 20% of people who do have contents cover undervalue their contents. State thinks some of this undervaluing is often older customers doing it unintentionally – it's just been a long time since they updated their policy but they have probably bought more stuff."

And where some customers do try to make an estimate, they struggle to make a reasonable job of it. "They just can't figure out what their stuff is actually worth," said Daly, which is where the insurers' guides come in.

Insurers such as State say they try to get customers to engage in their insurance, but often they can't get them to put in the time to do things like the room-by-room valuation they need to get their cover level right. "It's at the younger end of the market where contents tend to be uninsured. State's research shows that up to 18% of pre-family and young-family life stages have no contents cover – about 40% of these people say they never thought about it or just haven't got around to it.

"A smaller percentage – 6% – of older family and post-family life stages have no contents cover and almost half of these say it's because they think it's too expensive."

State regularly researches people's attitudes, and has found that when it comes to cutting back on spending in a financial crunch, house and contents insurance is rated as indispensable.

But contents does take a back-seat to house insurance in many people's minds, and that means some people put less effort into arranging their cover.

"Everybody who has general insurance insures their primary assets of house and car, but people are not quite as careful with their secondary assets – State thinks around 10-15% of New Zealanders have no contents cover," said Daly.

In some ways that is logical. Few people could rebuild their home after a catastrophic fire without an insurance payout. It would be far less of an issue to refurnish.

Some people also accidentally reduce their insurance cover, or invalidate it through their own actions, or inactions, including, for example, failing to specify expensive items of jewellery, only to find on its theft that the insurer will payout a maximum of $1000 per item on non-specified items.

CONTENTS CASES

Many people accidentally undermine their insurance, rendering it, in some cases, valueless. Often it is mistakes, lies, omissions or a simple misunderstanding of cover that leads to policyholders' claims being turned down. Some, it is fair to say, are not things ordinary people could be expected to know. Here are some examples investigated by the insurance ombudsman, in which it was found the insurer had behaved correctly in declining a claim.

When claims are declined and policies cancelled, an entry is made onto the "Insurance Claims Register" which can result in people being unable to get insurance in the future.

A woman's claim was turned down because she had failed to tell her insurer that a previous contents policy had been cancelled by an insurer.

Another woman's jewellery was stolen from her apartment in Sydney. Her contents insurance was for an address in New Zealand and the policy stipulated that it applied only to New Zealand.

A claim under a contents policy for the possessions of the policyholder's son was not paid as he did not "normally" live at the address.

A household claim was turned down because the policyholder did not disclose he had fraud convictions when he took the policy out. In a similar case, a woman's insurance was cancelled because she failed to tell her insurer she had been convicted of smuggling 9000 ecstasy pills out of the UK.

A man's claim for a scooter and tools he said were stolen from the boot of his car was not paid as he could not prove he had ever owned the articles.

A woman's claim for a damaged carpet was turned down because the insurer decided the damage was due to gradual deterioration or rot. She argued it had happened as a result of a pot plant overflowing when being watered, but could not point to a specific timing for the event.

A woman's claim for over $60,000 for a ring that was stolen when she removed it to wash her hands in a restaurant toilet was declined as she had not taken adequate care of it.

- © Fairfax NZ News