Is your property underinsured?

A local insurance expert has warned that rapidly rising building costs and changes to policy wording mean most New Zealand property owners are uninsured.

NZ Brokers CEO Jo Mason said that a recent Treasury report showed that up to 85% of New Zealand residential properties may be underinsured by up to 28%.

A spate of recent natural disasters around the country has highlighted the need for property owners to check policy wording carefully, she said.

“Changes to sum insured insurance policies, which limit the maximum amount an insurer will pay in the event a home is totally destroyed, could leave home owners under-insured.

“In an environment where building costs are rising at around 7 to 17% each year, there is no guarantee that the amount you are insured for will be enough to cover the cost of a total rebuild.”

This means that a house which cost $500,000 to construct just two years ago could be up to $185,000 more to rebuild today.

Mason said that effectively the risk of the rebuild cost being greater than the insured value is borne entirely by the policyholder.

“It is crucial that property owners are aware of what it would cost to rebuild their house from scratch and review this regularly.”

Property owners should check their house valuations in their policy against current construction costs in their region.

They should also check they are insured for the full replacement cost of their house, not just for a portion of it.

Mason said the cost of building materials, architectural features, council consents and a variation in the quality of workmanship mean the expense of a rebuild can vary significantly over time and across regions.

“My advice to property owners is don’t take unnecessary risks, consult with an insurance broker in your area who can assess your needs and is able to advise what type of cover is best suited.”