A Kiwi homeowner’s guide to finding the right house insurance

“When buying a house, [house insurance] is usually mandatory and refers to a policy that protects one’s house,” the company explained. “Homeowners insurance, or home insurance, is a more encompassing policy that covers more than one’s actual house, including other structures on the property and personal belongings contained within it.”

The group added that house insurance covers losses from perils that might cause sudden and accidental damage to the property. Coverage typically includes the cost to repair, replace, or rebuild your home.

Read more: ICNZ issues vital reminder about home insurance

The Insurance Council of New Zealand (ICNZ) listed three main types of coverage such policies provide. These are:

1. Fixed sum insured

Under this type of policy, the homeowner and the insurance company come to terms on the sum insured amount, with the insurer agreeing to rebuild or repair the house up to that limit – including all the fees involved – if the dwelling is totally damaged or destroyed. This is the most common type of cover in the market. 

2. Indemnity

Also known as present-day value, this pays out what the house was worth before it was damaged. According to ICNZ, the amount covered is roughly equivalent to the depreciated replacement cost of the dwelling – excluding the land, which is typically not covered by insurance – while factoring in the structure’s age and condition. It added that homes built before 1945 may only qualify for indemnity cover if they have been modernised.

3. Total replacement

For this type of policy, if the house is destroyed, the home insurance provider will rebuild or repair the dwelling up to the total number of square metres insured, as well as pay for all associated expenses, including professional fees and demolition costs.

The council added that New Zealand homeowners who have taken out a private insurance policy that has fire coverage – a benefit that most policies include – have their homes and land automatically covered under the Earthquake Commission’s EQCover. This means that when natural disasters occur, their insurance provider will take care of the EQC portion of the claim, and assess, manage, and settle the claim on their behalf.

Read more: What New Zealand homeowners need to know about EQCover

Does home insurance cover contents?

New Zealand homeowners can also take out a separate contents insurance policy or bundle it with their house coverage.

As the name suggests, this type of policy covers the contents of the home, including furniture, clothing, appliances, carpets, curtains, and other home furnishings. Contents insurance typically has claims limits – also called sub-limits – for high-value possessions such as jewellery and collections. Different policies, however, have varying restrictions and specific coverage conditions which is why it is important for homeowners to consult their insurance agent or provider to understand which items are protected.

Contents insurance provides two types of protection. These are:

1. Replacement cover

This covers the cost to replace a lost or destroyed possession with a new one or repair a damaged item to its condition when it was new. However, ICNZ noted that belongings over a certain age may not be eligible for replacement and there is an upper limit on what can be claimed. The council added that if the policyholders want cash, they may only receive the indemnity value of the possession.

2. Indemnity cover

This pays out the present value of the personal belongings, with the settlement dependent on how much would be paid to purchase the item at the exact time of loss or damage. This type of coverage often factors in the depreciation of the possession.

What should NZ homeowners look for in house and contents insurance?

Consumer website MoneyHub NZ listed down several factors that it considers crucial to finding the right homeowners’ insurance policies. These are:

Affordable premiums: The home insurance policy should be within the budget with an excess that homeowners can arrange should they need to make a claim.
Temporary accommodation: A good policy will include a lump sum amount if the house becomes uninhabitable due to an insured event.
New-for-old replacement: If belongings are stolen or damaged beyond repair, an insurance policy that replaces the items with new ones means policyholders would not get short-changed with a low payout for the items’ current value.
Legal liability: If a policyholder causes damage to someone else’s property, it is good to have coverage for compensation costs.
Debris removal, land work, and extra rebuilding costs: A good house insurance policy will make an allowance for other reconstruction costs, including demolition, professional, and council building consent fees, as well as the storage of undamaged contents.
Locks: An ideal policy will include an excess-free payment if someone breaks into the home and the locks need to be replaced.
Mortgage discharge: Home insurance policies should also cover legal and administrative costs to discharge the mortgage if the home is destroyed.
Inflation protection: As building costs keep on increasing, a good policy will consider inflation rates specific to building work – including labour and materials – and automatically make an adjustment to the sum insured.

Read more: One-third of Kiwis lack home contents cover – ICNZ

How much does home insurance cost in New Zealand?

A recent price survey by consumer advocacy group Consumer NZ has found that the cost of house and contents insurance in New Zealand has surged 150% in the past decade, registering a 5.6% rise in the 12 months ending in September last year alone.

Wellington and Christchurch experienced the biggest price hikes in the past year, with Wellington home insurance premiums increasing 16% for a standard house and 18% for a large dwelling. Christchurch median rates, meanwhile, rose 8.5% for a standard home and 17% for a large property.

Consumer NZ attributed the premium hikes to the surging value of housing, but the biggest factor, according to the group, is the shift by insurers to “full risk-based pricing” for natural disasters.

“This means if you live somewhere with a higher chance of earthquakes – such as Wellington or Christchurch – you’ll be charged more for insurance,” the organisation explained. “Insurers are also now factoring climate risks, such as flooding and coastal erosion, into their calculations for premiums.”

The group added that the EQC levy – which is paid with an insurance premium – can likewise drive up rates. The levy covers the EQC’s residential building payout, a portion that the commission contributes to claims when a natural disaster strikes.

“From October [2022], the EQC cap on payouts will be doubled from $150,000 to $300,000 (plus GST), which will add an extra $207 a year on to homeowners’ premiums,” Consumer NZ explained. “The levy amount paid by each homeowner will depend on their sum insured but will be a maximum of $552. The current levy amount is $345.”

Read more: New Zealand to overhaul natural disaster insurance programme

How can Kiwi homeowners save on home insurance premiums?

With the cost of home insurance on the rise, ICNZ shares several practical tips to help Kiwi homeowners slash insurance costs. Here are some of the premium-reduction strategies that the council recommends.

A good claims history will ensure you can get cover without additional terms like an excess. Some insurers also calculate prices based on the number of claims, so a good claims history keeps rates down.
Shop around for cheaper premiums but don’t just compare prices, look at the benefits as well. Be wary of the cover differences that may be offered for cheaper premiums.
Ask if a no-claims discount is available.
Before you buy a house, check with your insurer if insurance is available and how much it will cost. Premiums for flood-prone and other risky areas may cost more.
If you have a sum insured house policy, it should be for what it would cost to rebuild your house and not the market value or what you paid for it. Use the “Cordell” calculator to check.
Ask for a higher excess. Most insurers offer premium discounts for varying levels of voluntary excess.
Ask about discounts for multiple policies with the same home insurance provider. Having your car insurance and contents coverage with one insurer may entitle you to a discount.
Ask about discounts for professionally installed security alarms.
Some insurers offer different levels of cover, so choose one that meets your needs and is within your budget. For example, ask your insurer if they offer a reduced form of cover, such as a “named perils” policy. These policies are often cheaper because they offer less cover compared to a standard comprehensive “accidental damage” policy, which covers all perils.
Where benefits can be added, only choose those you need.
Most insurers charge more if the customer pays by instalments due to increased administration costs, so it generally works out cheaper to pay an annual premium. If you would struggle to pay a lump sum annually, ask your insurer if you can pay your annual premium by fortnightly or monthly instalments.