Following the Christchurch Earthquakes many homeowners have been affected by increasing insurance premiums. What many may not be aware of are the changes to what your house insurance policy will actually cover if and when the worst happens.

Previously, insurance companies in New Zealand have had an open ended “total replacement cover” for homes based on the floor area of your existing home. For example, if your home is 140 metres square, then your insurance company would cover the full cost of rebuilding a similar home to that size, whatever that cost was.

Now the onus is on the homeowner to work out how much it will cost you to rebuild your home. For example, if you estimate it will cost $250,000 to rebuild your home but in fact it costs $300,000 then you will have to cover the shortfall of $50,000.00 yourself. Conversely, if you estimate that it will cost you $400,000.00 to rebuild your home and it only costs $300,000, you will be paying insurance premiums based on the $400,000 but will only receive the $300,000 required to rebuild your home. It is therefore important that you obtain an accurate estimation of the cost to rebuild your home, so that you don’t under- or over- insure.

It isn’t just about the house though. Homeowners will need to look at the cost of rebuilding garages, garden sheds, other outbuildings, driveways, swimming pools, retaining walls, fences and other improvements on their property.

Homeowner’s will also need to consider inflation; what it may cost to rebuild in 2014 will likely be very different to what it would cost in 2030 to rebuild the same home. Homeowners will have an on-going responsibility to ensure that the figure they use for their insurance policy is up to date.  Also, pre-construction costs would need to be taken into account; if your home is largely destroyed by a fire, earthquake or other disaster, what if it costs $50,000 to remove debris to get a clear site to even begin rebuilding? Those funds would eat away at what is left from the insurance pay-out to rebuild your home.

While there are some online calculators available to help homeowners, experts are warning that these may not be enough and a registered valuation may be required to help you get a more accurate figure. Homeowners will need to check with their insurance companies and if they have a mortgage over their property, they may also need to check with their Lender, what is required.

For those purchasing a new property, getting your house insurance organised early is necessary to ensure a smooth settlement process. Talking to your lawyer, lender and insurance company early on is a smart move.

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