House insurance is usually required if you have a mortgage. Even if you don’t, your home is still likely to be your biggest asset, so it makes sense to have it insured. In fact, most financial advisers would say you’d be crazy not to.
However, with all the costs of buying a house, moving in and setting everything up, it can be tempting to put off insuring your possessions, at least until your budget’s less stretched. You may not fully understand how contents insurance works, why it’s important or how to calculate the cover you need. That can send it straight to your ‘too hard’ basket, especially when you’re deep in the pressure and excitement of moving into a new home.
This guide will help you give home and contents insurance the attention it deserves. We’ve written it as frequently asked questions, so you can get straight to the answers you need right now or browse them all to get the full picture.
What is a home and contents insurance policy?
Doesn’t house insurance cover your big items anyway?
In most cases, house insurance covers anything that’s permanently built-in, fixed, wired or plumbed to your house. So it would cover a permanently built-in BBQ, but not one that can be moved or easily removed. It would cover the laundry sink, but not the washing machine or drier. Fixed carpets would be covered, but not rugs. A heat pump system is covered, but not plug-in heaters. A built-in window seat, but not its cushions or any moveable furniture for that matter. You get the idea.
When should I start arranging insurance for my new home?
If this is your first home, you might think it’s just like car insurance. Maybe you’re planning to make a quick call just before you take possession. If you already have home and contents insurance, you might think it’s just a matter of phoning your insurer a week or so before moving, to get your cover transferred to your new home. But both approaches are dangerous. Getting insurance at the last minute can turn into a nightmare at a time when you might already be struggling to sleep well.
Here’s why.
Although home and contents insurance is usually easy to arrange over the phone, extra information – and even things like an electrical inspection – are sometimes needed. Worse still, the home might turn out to be uninsurable. If you don’t have insurance sorted before you have to pay for the property, your home loan lender won’t provide the money required. That can mean you have to pay penalty interest to the owner until you are insured, or pull out and lose your deposit. If you’ve sold your existing home or ended your rental agreement, you may not have anywhere to live in the meantime.
The best time to arrange home and contents insurance is well before you take possession of your new home. In fact, it’s a good idea to check the home is insurable and what it will cost before you agree to buy it. You can always make an offer subject to arranging insurance, just as offers are commonly subject to a building inspection and finance. As soon as the sale and purchase agreement becomes unconditional, and before things get too busy, you can simply finalise the insurance so the cover and premium payments automatically begin on your settlement date.
What information do you need when insuring a house?
Ever since the Canterbury earthquakes, house insurance policies have been ‘sum insured’ rather than full replacement. That means you agree to a maximum amount the insurer will pay out, even if your home is completely destroyed.
You need to work out what it would cost to completely rebuild after something like a fire, flood, explosion or earthquake. This isn’t what you paid for the property or what it’s now worth, because that includes the land value. You have to allow for demolition and removal of what remains, architect and builder plans, council consents, building costs, landscaping and so on.
A builder or quantity surveyor can give you an accurate estimate, but they’ll charge you a fee. There are also free online calculators, provided you have a reasonably standard house. In addition to the ‘sum insured’ that you want, the insurer will usually ask about these points:
- Address
- Build year
- Floor area
- Materials
- Condition
- Section – sloping or level
- Fixed items, such as retaining walls, decks, separate buildings and a swimming pool
For houses built before 1935, insurers often require an electrical inspection to establish whether they have been re-wired. If the house has any damage this may also need to be assessed.
What information is needed for contents insurance?
Like most types of insurance, contents cover can vary widely when it comes to inclusions and exclusions. Contents insurance cover also has an agreed ‘sum insured’. It’s the maximum amount the insurer will pay out even if you lost all your insured possessions.
Total sum insured
Individual item limits
Contents insurance excess
Your details
The cost of any insurance policy is based on the risk to the insurer. So apart from the maximum pay out costs mentioned above, there are a number of things your insurer will want to know. Here are some of the main ones for contents insurance.
- Your home’s address / location
- If you have an alarm and whether it’s monitored
- Your age
- How many people are living with you
- Whether you have boarders or tenants in part of the house or property
- Your insurance claims history
What does contents insurance cover?
It covers most of the things you own that are normally kept at your home, but not permanently fixed to the house or property. Contents insurance usually covers theft, loss and accidental damage when an insured item is at your home or with you anywhere in New Zealand.
As mentioned above, each policy will have agreed limits on the maximum possible pay-out, as well as individual limits for some types of items.
Most policies offer ‘as new’ replacement. This means they’ll fix or repair an item to as new condition, replace it with a new equivalent or pay you the cost of a new one. Some policies only offer ‘current value’ cover instead. These will have cheaper premiums, but something like your four-year-old laptop may no longer be worth much and could be hard to find second hand.
What is not covered by contents insurance?
Every policy is different, so be sure to read the exclusions carefully. Here are some common examples of when contents insurance usually does not apply.
- Items that are normally insured separately, such as a car, boat or work tools/equipment
- If the type of item is listed in the policy exclusions, which can sometimes include mobile phones or electric bikes
- If something is stolen by a boarder, tenant, flatmate or guest in your home
- If someone living in your home has been convicted of a crime that could lead to imprisonment
- If the loss or damage was caused by a deliberate act, i.e. not accidental
- If the claim results from gradual damage or normal wear and tear
- If the claim results from illegal activity
- If the claim relates to an event while the item was not in New Zealand
In addition, some policies exclude cover when a thief did not have to force their way in because a door was left unlocked or a window was open.
Where to get home and contents insurance advice?
Although your home loan provider may be keen to sell you a home and contents insurance policy, you don’t have to take it if you can find a better deal elsewhere. However, it takes time to work out the cover you need, shop around and read each policy carefully to get the best deal for your circumstances.
Getting expert financial advice is always a good idea. One option is to work with a good insurance adviser or broker who represents most of the main insurance companies. Just like mortgage brokers, they begin by understanding your situation, budget, risk appetite and goals. They’ll present the best options to you, explain why they suit your needs and help you to apply for the policy you choose. In most cases the broker is paid by the insurer you select, so there’s no extra charge to you.
