While house or home insurance is not compulsory in New Zealand, it’s usually required when you have a mortgage. It also makes a lot of sense, given your home is your largest investment and where you and your family live. Partial or complete destruction of your home could be something you never recover from if you’re not covered by insurance.
Not all home insurance policies are the same and the premium you pay can be quite different from one insurer to another. Some homes are more difficult to insure or simply more expensive. It pays to investigate insuring any property before you agree to buy it.
If you think you’re OK because there’s EQC insurance in New Zealand (the government’s natural disaster insurance for residential buildings), think again. EQCover only offers up to $300,000 + GST per event and you must have your own house insurance with fire cover to get it.
This house insurance guide is designed to get you started on understanding the different types of cover and what affects the premiums. That way you can decide what you need and choose the best value policy for your circumstances.
The main types of house insurance in NZ
While the details of each house insurance policy can be different from others, at a high level they can be separated into two broad types.
Basic house insurance: These bare-bones policies typically provide cover for major events only, i.e. flood, fire and theft. Theft refers to damage caused during a robbery (such as broken windows), as well as the theft of items fixed to your property (a gas hot water system, for example)
Comprehensive house insurance: This type of protection provides more cover for major events. It also covers accidental damage, such as backing your car out of the garage when the door’s still closed, breaking a window or a tree falling onto the house during a storm. Comprehensive policies can also cover certain types of gradual damage and may include valuable extras, such as paying for accommodation while your house is being repaired or rebuilt.
Full replacement vs sum insured
The other main difference has to do with the maximum amount your insurance company will pay out.
Following the Canterbury earthquakes, most house insurance policies in New Zealand moved to ‘sum insured’ policies only. Instead of agreeing to replace or rebuild your home to how it was (full replacement), sum insured policies have an agreed maximum amount the insurer will pay out. If this isn’t enough to repair or rebuild your home, you’ll have to pay the extra yourself.
Sum insured cover allows insurance companies to know exactly how much cover they’re providing. It’s often required by the large global wholesale insurers that provide ‘reinsurance’ to your insurance company in case of a major natural disaster.
With sum insured policies it’s important to accurately estimate what a complete rebuild of your home would cost. This should also be reviewed annually, as building costs change with time. We provide more on estimating a sum insured towards the end of this guide.
The higher your sum insured, the more expensive your policy will be. While it may be tempting to under-insure during times of financial hardship, these are usually the very times when you can least afford to pay the difference for a rebuild. We discuss some tips for reducing your premium in a later section.
What does house insurance typically include?
Every policy is different, but here are some of the main things usually covered by house insurance in NZ.
- Residential buildings, including decks, balconies, garages, carports, sheds and greenhouses
- Built-in BBQs, awnings, fixed clotheslines and letterboxes
- Built-in or fixed spa pools, saunas, swimming pools, water tanks and septic tanks, as well as the systems associated with these items
- Attached satellite dishes, aerials and solar panels
- Permanently attached, wired, plumbed or built-in fixtures and appliances
- Fixed floor coverings and carpets
- Driveways, paths, paving, patios, gates, fences and tennis courts
- Pipes, drains, utility services cables, gas pipes and power poles
What do most house insurance policies not cover?
- Damage due to use (wear and tear) or caused by pets
- If you’re away and the house is empty for one or two months in a row, a higher excess can apply for some types of losses and some other things may not be covered at all – check each policy
- There may be limits on the amount of cover for accidental damage
- If you run a business from home and that work results in damage to someone else’s property, such as a neighbour’s house, your house policy’s legal liability cover may not apply
- Acts of terrorism are not covered, which is something you’ll find with most types of insurance
What happens to your house insurance if things change?
- Renting your home on a short-term (holiday) or permanent basis
- Structural additions or alterations to your house, garage or other items covered in your policy
- Business use of your house or any part of the property, including simple things like regular/frequent meetings with customers or colleagues, but usually excluding home office activity, such as computer work, online meetings and work phone calls
- If anyone who lives in your house commits, is charged with or is convicted of a criminal offence, except for traffic offences
What affects the cost of house insurance?
As you’d expect, one of the main things that affects your home insurance premium is the sum insured. That means the agreed maximum amount the insurer will pay to repair or rebuild your home. But it’s only one of the factors that can influence the premium charged. The other factors fall into three broad groups.
How location affects house insurance in New Zealand
Houses in locations that come with more risk of a natural disaster, or are on more challenging rebuild sites, can be difficult or more expensive to fully insure.
- Earthquakes: Houses in Christchurch and Wellington can be challenging and more expensive to insure, due to a higher earthquake risk.
- Flooding: Houses in areas that are prone to flooding or in council identified flood zones can also be troublesome when it comes to getting insurance.
- Rising sea levels: Houses that are close to sea level are becoming increasingly difficult to insure, as climate change gradually elevates the sea level. Climate change is also increasing the frequency and severity of damaging storm (wave) conditions.
- Volcanic and geothermal activity: Any home close to active volcanic or geothermal sites may well attract a higher premium.
- Steep or remote sections: While this should be taken into account when calculating the appropriate sum insured, it’s worth bearing in mind that sloping sections and sites with difficult access are more expensive to rebuild on. Very remote properties may come with the added cost of travel time or onsite accommodation for tradespeople.
In addition, insurers tend to limit the number of houses they insure in a particular area. This helps to spread their risk across the country and avoid having too much of their business in a particular location.
How does the type of house affect its insurance premium?
The size of a house, what it’s made of, architectural design and even age can affect your insurance premium. Some factors influence the cost to rebuild, while others can affect the risk of a claim arising in the first place.
It’s important to check the availability and cost of insuring a house before you sign up for cover. You can’t assume all houses are insurable or that houses of the same value have similar insurance premiums.
Here are some features that can affect insurance premiums.
- Year built: This can catch you unawares if you just assume you’ll get insurance sorted a few weeks before settlement date on your next house. A home built before 1935, for example, can be difficult to insure if there isn’t clear evidence that it’s been re-wired. That’s because old wiring can lead to short circuits that spark a fire. At the very least you might have to pay for an urgent electrical inspection at the last minute.
- Wall and roof materials: This can also include when the house was last re-roofed.
- Build quality: The current state of the house or how well it was built, including any weather tightness risks, can also affect the premium.
- Additional onsite buildings: Separate garages, sheds, studios and granny flats will all add to the cost of house insurance.
- Apartment, townhouse or freestanding home: Apartments and some townhouses can cost less to insure, but not always. If there’s a body corporate involved it will often negotiate a favourable group insurance deal on behalf of all the owners.
How to pay less for house insurance
If you want to minimise your house insurance premium, here are some tips to consider.
- Consider having all your insurance with one company, so that you qualify for a multi-policy discount on them all.
- Don’t be afraid to shop around and switch insurers. Your current insurer will refund the portion of your premium you still have in advance. Before switching, always check the cheaper policy’s cover details first.
- Talk to an insurance broker to make sure your cover is appropriate for your situation and that you’re getting the best deal.
- Pay annually if you can, rather than in monthly instalments.
- Consider increasing your excess, which is the amount you have to pay towards any claim.
- Check your sum insured in case it’s more than the cost to completely rebuild your home.
How to work out the sum insured for your house
Insuring your house for a realistic replacement cost is really important. If you under-insure, you’ll end up having to find the extra money yourself. Over-insuring slightly could be a good idea, but you’ll pay a higher premium.
You can’t just use the purchase price of your home to establish your sum insured, because it includes the land value. Nor can you use the ‘improvements’ value from your council valuation, because that doesn’t consider all the costs of a rebuild.
If you can afford to pay a registered valuer or quantity surveyor, you’ll get an accurate estimate. Otherwise there are some good online tools, such as the independent Cordell Calculator. Insurance companies usually have their own version of the Cordell Calculator on their website.
Your calculations need to include things like the demolition and removal of what remains after a large fire, as well as any ground remediation after an earthquake or flood. Associated costs, such as architectural plans, scaffolding and council consents, should also be included.
Good house insurance advice is important
It’s important to get professional advice when insuring or re-insuring your home. While your mortgage provider may also offer house insurance, you don’t have to go with them. Talk to several insurers, ask about the key benefits, shop around and carefully compare quoted policies before deciding. And always check that a property is insurable (and for what cost) before you decide to buy.
If you’re short on time, a good insurance adviser who represents most major insurers may be the best option. They’re paid by the insurer you decide to go with, so there’s usually no extra cost to you.