The new form of House Insurance
For most homeowners, their home insurance has always been an unspecified ‘replacement’ cost based on the floor area of their home. However, following the Christchurch earthquakes, insurers are now adopting a new home insurance policy whereby all home insurance policies will be based on an ‘insured sum’.
The policy change is a result of major reinsurers (the insurance companies who insure our local insurance companies) requiring greater clarity on risk and the maximum costs to rebuild the homes they insure. Many insurers claim that the changes are about providing certainty and managing affordability for homeowners, and that costs of premiums for home owners will not change. The onus is now on homeowners to get their home valued correctly as the insured sum will be the maximum amount the insurers will cover in the event of a claim.
In order to determine the insured sum, homeowners must determine the cost of completely rebuilding their home. It is paramount for homeowners to be aware of the unique features of their home that may include:
- structural features (floor area, number and types of rooms and levels, the style and standard of construction of the home, the material used to build the home);
- exterior structures associated with the home (decking, paving, driveway, garage);
- recreational features (swimming pools, tennis courts);
- the slope of the land the home is built on and whether there are retaining walls; and
- additional special features near the home (bridges, dams, private wharfs).
The insured sum does not include the value of the land on which the home is situated. The original purchase price, rates valuation, or other estimate cannot be relied upon to determine the home’s value for insurance purposes. Each year, at renewal time, homeowners will need to determine the adequacy of the sum insured. It is crucial for homeowners who complete renovations or changes to their home to ensure that those works (and the possible increase in value) are covered by their insurance policy.
Obviously, this is a significant change to the duties of the houseowner and shifts the onus to them to correctly value their home and the insured sum. Homeowners need to be proactive, as many insurers have already transitioned all new home insurance policies to the ‘sum insured’ base, and all existing policies are likely to change at the time of renewal. One of the main consequences for homeowners, if they fail to adhere to the new policy, is that a default sum for the home will be calculated by the insurers which may not reflect the home’s true value or the costs likely to be incurred in replacing it.
It is essential that homeowners be aware of the terms of their insurance policy, and be proactive in contacting their insurer to ensure their home is adequately protected. If in doubt contact us.