How does house insurance work?

By : Nick Marr

Whether you’re researching for your first-ever house insurance policy or your 10th, it’s smart to get your head around the best way forward. Insurance can be tricky to understand, especially if you’re dealing with a company that likes to speak legalese.

A home is a big asset. Maybe the biggest you’ll ever own. So it’s important to choose the right type and amount of insurance protection. If you took out a home loan to buy your place, we’re pretty sure the bank involved will insist on seeing evidence that you have decent insurance protection.

If you’re a property investor, you have the option of adding an extra bit to your policy – landlord protection. It covers possibilities like intentional damage to your rental property and even loss of rental income, if your tenant does a runner without paying up.

For more information and advice on house insurance visit:

What’s covered by house insurance?

Whether you call it house insurance or home insurance, it’s all about the dwelling – a place of residence that you either live in or rent out.

Insurance cover for dwellings is designed to protect you from financial risks connected to damage or destruction. Destruction is usually something like an earthquake or fire; damage could be caused by anything from tree roots cracking your plumbing (called hidden gradual damage) to an out-of-control truck landing in your living room.

The cover will usually protect other elements of the property too, like a spa pool, swimming pool or (if you’re really lucky) a tennis court. There will usually be cover limits applied to these nice-to-haves, which are called ‘recreational features’.

Retaining walls are also usually covered by home insurance, up to a certain limit. And, because we live in modern times, a good home insurance policy should cover damage caused by methamphetamine contamination – something that every landlord needs to consider these days.

What’s not covered by house insurance?

Most Kiwi homeowners love to do a bit of DIY or get a builder mate to perform a makeover. It’s important to remember that this kind of work isn’t usually covered by your average home insurance policy. You need something called ‘contract works insurance’ to cover the weeks (months or years!) when work is underway.

Wear and tear is another area to be careful about. Insurance isn’t designed to cover gradual deterioration of your property, like the sort of damage that can be caused by rot, mildew or rust.

And there’s one other type of damage you should be wary of when buying insurance – intentional damage. If you or your spouse/partner intentionally burns the house down or blows it up, cover won’t apply. However if the damage is unintentional (accidental), because you forgot about a pan of oil on the stove, you are probably covered.

Every house insurance policy has inclusions and exclusions. It’s up to you to read the fine print and understand them before you sign on the dotted line.

How much is your home worth?

The amount of house insurance you need will be linked to what it’s worth, either in its current condition or if it was built again from scratch.

As a rule, your home will be covered for a ‘sum insured’, which represents the maximum amount your insurer will spend to reinstate (repair or rebuilt) your home when you make a claim. Ideally, the sum insured should be the amount it would cost to completely rebuild the house, including its recreational features. The sum insured can also include expensive things like demolition, removal of debris and professional fees related to the reinstatement of your property.

Make sure you ask about other components of the property, like decks, driveways, garages and fences. They should also be covered within the sum insured.

How do you keep your policy up to date?

You probably know that contents insurance needs to be updated when you buy new stuff. As a rule, your contents value will increase as you get older (and richer). The same idea applies to house insurance.

When you make your house better, with renovations and extensions, it will be worth more. And there are other market forces at work too, like construction labour costs, building code changes and the price of materials.

Get in touch with your insurer before a building project starts, in case you need contract works insurance to offset the risks of construction. When the work is finished, use an online calculator or registered valuer to come up with an updated sum insured.

On an annual basis, when your policy is due for renewal, talk to your insurer about possibly adjusting your sum insured to cover increased rebuild costs. Maybe no adjustment will be necessary, but it’s always wise to check.

How can you keep insurance affordable?

We recognise that insurance is what’s known as a ‘grudge purchase’. Given the choice, you’d rather spend the money on a holiday. But there is no choice. Insurance is one of those must-haves, like food and transport.

However there are a few ways you can shave some dollars off your annual premium:

  • Put your home, contents and vehicle insurance with the same insurer. You’ll get a discount off all of them.
  • Pay your premium annually, rather than monthly. Splitting a premium into 12 monthly payments can increase the total premium.
  • Ask your insurer to give you excess options. The higher the excess, the lower the premium. In case you don’t know what an excess is, it’s the amount you pay towards a claim.