Rising building costs endanger cover
Insurance brokers are warning that the rising cost of building has left many homeowners dangerously under-insured. Jo Mason, chief executive of brokerage group NZ Brokers, said recent natural disasters highlighted the need to check policy wordings carefully.
Most house insurance policies are now on a ‘‘sum insured’’ basis, where the homeowner and insurance company agree on a set sum that will be paid out if a house is destroyed in a disaster.
But Mason said that given building costs were rising at a rate of 7 per cent to 17 per cent each year, appropriate cover a couple of years ago might be well below what was needed now.
QV estimates that the cost of building a house that is more than 200 square metres increased 34 per cent between 2007 and last year. ‘‘There is no guarantee that the amount you are insured for will be enough to cover the cost of a total rebuild,’’ Mason said.
‘‘What this means is that a house which cost $500,000 to construct just two years ago could be up to $185,000 more to rebuild today. Effectively the risk of the rebuild cost being greater than the insured value is borne entirely by the policyholder.
‘‘It is crucial that homeowners are aware of what it would cost to rebuild their house from scratch, and review this regularly.’’
She said homeowners were under-insured by an average of 28 per cent.
‘‘Homeowners need to avoid thinking ‘It won’t happen to me,’ and instead speak to someone like an insurance broker, who will educate them on aspects to consider when it comes to determining their house value,’’ Mason said. ‘‘While many homeowners do not find the topic of insurance very interesting, they need to better understand the risks associated with having an inaccurate valuation in their insurance policy.’’
Insurance and Financial Services Ombudsman Karen Stevens said some people affected by the Kaikoura earthquakes had discovered their cover was not enough.
‘‘Finding you are under-insured is very traumatic. It is timely to remind everyone to make sure you have enough cover. The big question you need to get right is whether the sum insured amount is enough to rebuild your home in the event of a disaster.’’
Mason said it was foolish to have a house insured for less than its full value.
‘‘It’s like saying you are not going to spend money on safety features for your car because you are not going to have an accident.’’
The Treasury released a report last year that estimated Kiwi households could be underinsured by up to $184 billion.