House insurance. What s changing and why

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1 House insurance What s changing and why 1

2 What s changing? House insurance in New Zealand is changing. Your home is probably your biggest investment so it s important that it s properly insured if the worst happens. That s why we want to make sure you know about what s currently changing with house insurance in New Zealand and how it affects you. In New Zealand, house insurance has been typically based on full-replacement cover, with no maximum dollar limit. However, soon most insurance companies, including TOWER, will offer cover based on the cost of rebuilding your home up to a maximum limit. This maximum limit is called your sum insured. Why is it changing? These changes are a direct result of natural disasters around the world, including our own Canterbury earthquakes, and they ll bring New Zealand in line with how house insurance works elsewhere in the world. Global reinsurers (those companies that provide insurance companies with insurance) will now generally only provide reinsurance cover in New Zealand if they know the maximum potential costs they face. The sum insured cover gives them this certainty and means that house insurance here can continue to provide natural disaster cover and remain as affordable as possible. 2 3

3 What is the sum insured? What you need to know The sum insured is what you specify to your insurance company as the amount needed to rebuild your home in case of a total loss. Some of the things you need to consider include: The cost of materials and labour in today s prices All your extra features like decks, fences, outbuildings, driveways, swimming pools, retaining walls, garages, etc. If you ll need to pay for an architect, engineer or other professional services Any council fees or costs to comply with building code requirements at the time of rebuilding Any demolition costs that could apply. It ll now be your responsibility to make sure your sum insured is going to be enough to rebuild your home. 1. It s important to understand that the sum insured shouldn t be your rateable market value** or your existing mortgage amount. Rather it s the total cost of rebuilding your home. 2. The cost of rebuilding your home could also change over time. This might happen because construction costs change or because you ve completed a renovation or addition to your home. To ensure your sum insured stays accurate, you should review it whenever your policy renews or after any major work. We ll also help by automatically applying a Building Consumer Price Index adjustment to your sum insured, before we send you your policy renewal notice. 4 5

4 What you need to do What to consider You need to review the default sum insured and consider if it s going to be enough to rebuild your home. If it ll not be enough, you ll need to work out what your sum insured should be. We ve calculated a default sum insured for your home by using a formula of $2,000 (GST inclusive) per square metre, e.g. 100m 2 x $2,000 = $200,000 sum insured. The $2,000 per square metre is based on what it generally costs to build an average New Zealand home*. This is a starting point for you only. We are not saying the default sum insured will be sufficient for your home. That is for you to decide. It s a good idea to review this amount and check it s enough to rebuild your home. It s especially important to do this if you have any special or high end features, because this default amount is likely to be insufficient in this situation. No two homes are exactly the same and there are many factors that can alter the cost of rebuilding, including: Land is the land your house is on, flat, sloping or steep? Levels does your home have more than one level? Construction how was your home built? Using weatherboard? Brick and tile? Finishing are the finishings in your home of average standard, high quality or prestige? Features are there any extra features like decks, fences, outbuildings, driveways, swimming pools, retaining walls or garages that need to be taken into account? You should take all the factors affecting your home into account when working out your sum insured. *The dollar amount used in the default sum insured calculation is an average based on TOWER s experience of rebuilding homes throughout New Zealand, as well as our research with building companies and the rebuild estimates provided by the Department of Building and Housing New Zealand. 6 7

5 Options for calculating your sum insured How to check your square metres Here are two easy ways you can find out further information to help you calculate the right sum insured: 1. Talk to a professional this could be a valuer, architect, builder or quantity surveyor. They should provide an insurance rebuild valuation rather than a market valuation, taking into account additional costs such as council fees and demolition costs. Professionals are likely to charge for their services. You can find a list of professionals at 2. Use the free online calculator by visiting This calculator is provided by Cordell, a third-party, independent company that specialise in building and construction information. It s a guide only and it uses general building information and costs to give you an estimate based on the information you provide. There s also a lot of further useful information and links on our website If you don t think the square metres we ve used to calculate your default sum insured are correct, then you can check this by: 1. Looking at your house plans the square metres should be stated on them. If you can t find them on your plans, you may need to talk to an architect or builder. They ll know how to locate them. Be cautious using the square metres shown in Quotable Value and other property websites because these can often be wrong or out of date. 2. Measure your house you can do this by measuring the outside of your home. Make sure you include any additional levels and you ll also need to include any attached garages. But for the purpose of your insurance with us you won t need to include measurements for any decks, balconies or any detached outbuildings, sheds or detached garages. 8 9

6 Common questions Is sum insured linked to the market value or the mortgage amount of my house? No.** The market value or purchase price for a house is affected by many other factors like proximity to schools or the value of neighbouring homes and typically includes your land. Your mortgage amount may include the value of the land and would not relate to the rebuild cost of your home. Your sum insured figure for insurance purposes should only reflect the pure cost of rebuilding your home like-forlike and associated costs. Am I entitled to the full sum insured if my house is destroyed? Only if the cost of rebuilding your home to the same standard is equal to or more than your sum insured figure. It s important to remember that if the rebuilding costs are lower than your sum insured, we will only pay these actual rebuilding costs. If the rebuilding costs are more than your sum insured, the most we will pay is your sum insured. Should there be a shortfall, you will have to meet this cost yourself. The sum insured is the maximum we would pay in the event of a loss. It s always paid less any applicable excess. Will my premiums increase? House insurance premiums are generally increasing. This is primarily due to rising reinsurance costs and increases in government levies such as the Earthquake Commission levy. Sum insured cover helps to give reinsurers certainty about their exposure and helps to ensure we can continue to offer natural disaster cover and keep premiums at affordable levels. Should you wish to change your default sum insured, there will be an associated premium adjustment. Premiums only go up in relatively small increments. For example, an additional $100,000 on your cover may only add a few extra dollars a month to your premium. I have a present day value policy. Is this changing to sum insured? Yes. Your present day value policy will change in the same way as full replacement house insurance policies. The main difference is that your default sum insured figure will be based on the lower figure of $1,600 per square metre. Present day value takes into account depreciation and deferred maintenance which means a percentage may be deducted from any claims to allow for this. Any claim settlement will be limited to the sum insured or the market value of your house, whichever is less. Is the sum insured GST inclusive or exclusive? With TOWER your sum insured is always GST inclusive. **Present day value policies are the only exception here. Present day value cover is limited to the lesser of the market value of your home at the time of the loss or damage, excluding the value of the land it is situated upon as an unoccupied site, and the sum insured

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