Don’t ac­cept in­sur­ance by de­fault

Auckland City Harbour News - - OPINION -

The good news is that 93 per cent of peo­ple with house in­sur­ance un­der­stand that it has changed.

But 64 per cent of peo­ple with it have car­ried on as if it hasn’t.

The change, which hap­pened just over a year ago, was the sweep­ing away of to­tal re­place­ment in­sur­ance.

In its place ap­peared in­sured’’ cover.

To­tal re­place­ment does what it says on the tin, with the in­surer ob­li­gated to pay the cost of to­tally re­plac­ing a pol­i­cy­holder’s home in the case of it be­ing de­stroyed.

Sum in­sured in­sur­ance dif­fers in one way: The pol­i­cy­holder sets a max­i­mum amount that the in­surer would have to pay to right the dam­age. That max­i­mum is the sum in­sured.

That may not seem like a big change but at a stroke, the ‘‘peace of mind’’ house in­sur­ance brought – that no mat­ter what hap­pened, the home­owner could af­ford to re­build – dis­ap­peared.

Sud­denly, it was up to us, the home­own­ers, to tell the in­sur­ers what it would cost to re­build.

The prob­lem is that few of us are ex­pert in such mat­ters and that seems to have frozen many of us into do­ing noth­ing.

In­stead of tak­ing steps to get an es­ti­mate of our home’s re­build costs, most of us have just ac­cepted the ‘‘de­fault’’ sum in­sured sug­gested by our in­sur­ers. That’s a huge con­cern. The way that de­fault is worked out does vary a bit be­tween in­sur­ers but the thing all home­own­ers must un­der­stand is that they are not finely cal­i­brated

‘‘sum based on de­tails in­sur­ers hold about peo­ple’s homes.

In­sur­ers ac­tu­ally seem to know lit­tle about homes they in­sure.

They know where they are and how old they are.

But they of­ten don’t know how many floors they have or the slope of the land un­der them or the qual­ity of the fin­ish­ings or the ma­te­ri­als they are built out of.

So, in short, the de­fault sums in­sured quoted to pol­i­cy­hold­ers are likely in the ma­jor­ity of cases go­ing to be in­ac­cu­rate.

But about 80 per cent of peo­ple with house in­sur­ance are re­ly­ing on them. Con­struc­tion Cost Con­sul­tants (CCC), which spe­cialises in pro­vid­ing home­own­ers with re­build es­ti­mates, says in some parts of the mar­ket, the fig­ure is higher.

Eighty-five per cent of bank in­sur­ance cus­tomers have just ac­cepted the de­fault es­ti­mates, the com­pany says.

If you are one of the sum in­sured de­fault­ers, what should you do?

Don’t be in­tim­i­dated. That you have in­sur­ance means you will be able to build a re­place­ment home, even if it has to be smaller, or there is a short­fall. But you can get a more ac­cu­rate es­ti­mate.

Firstly, you can set aside a cou­ple of hours and plug the de­tails of your house into one or more of the in­sur­ance in­dus­try’s free on­line cal­cu­la­tors. Have a builder’s tape mea­sure handy.

If that fright­ens you, get an ‘‘able’’ fam­ily mem­ber or friend to help you. The cal­cu­la­tors of dif­fer­ent in­sur­ers can pro­duce dif­fer­ent re­sults, which is a lit­tle un­set­tling.

If you are un­will­ing to ac­cept the cal­cu­la­tor es­ti­mates then pay an ex­pert. Some opt for a sim­pler method. In­stead of pay­ing an ex­pert, they use the cal­cu­la­tor re­sult but then then add a mar­gin for er­ror by lift­ing the sum in­sured they ask for.

Each year there­after, your in­surer will lift the sum in­sured by a rate equal to the rate of build­ing in­fla­tion.

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