Having insurance is an important part of being resilient. It puts you back on your feet when the unexpected happens so you can get on with your life.
If you’re new to insurance, or new to a certain type of policy, perhaps you’ve purchased your first home, there’s plenty to consider when you’re thinking about buying it. Here at the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa, we understand there can be a lot to find out about the cover you need.
Here are our top three tips for anyone looking for a new insurance policy.
1. Understand what you need
Before you launch into an evening of Google searches and online insurance calculators, take some time to make notes on exactly what you need. Some questions you might ask yourself may include:
- For your house, having insurance will be a condition of your mortgage so make sure you’re getting all the cover you need to meet that obligation. It’s also a great idea to check out the likely cost of insurance before putting in an offer on a new home or car.
- How much is the asset worth that you want to insure? In the case of your house, how much would it cost to rebuild or replace? You may also have a rough idea of what your car’s worth but do check. Over the past year or so, the value of late model cars has actually gone up! When it comes to calculating the value of all your stuff (what would be covered by a contents policy) from furniture and electronics, to clothes, towels and crockery, that can be difficult to add up without a little help. Luckily, most insurers provide tools to help make sure you include everything.
- For your car, options range from third party only (covers you for damage caused to others) third party fire and theft (adds cover if you lose your car to fire or theft), or comprehensive which covers you for other damage to your vehicle. Also consider who you want to cover for driving your car.
- Think about how much you are willing to pay towards putting things right in the event of a claim (your excess). By contributing to a share of the risk, you can reduce your premiums. For example, agreeing to pay the first $800 of any claim yourself will lead to lower premiums compared to paying only the first $300 of a claim yourself.
- How do you want to pay? Some insurance providers may provide discounts for different payment types.
2. Do your homework
Just because friends and whānau have been with the same insurance provider for 20 years, that doesn’t mean that provider will suit best your needs or budget.
Now that you understand what you’re looking for in an insurance policy, some online research would be a sensible next step to ensure you understand the premiums you’re likely to be paying, and whether you need to consider any other elements for your insurance policy.
Many insurers provide online calculators that you can use to assess your insurance requirements and provide you with your insurance quotes. They are typically available to help you calculate the cost of rebuilding your home or to estimate the cost of replacing everything in it as you might need to do if you lost everything in a fire. If it’s your first time calculating these costs, you may well be surprised just how quickly things add up.
Once you know how much cover you need, it’s easy to get quotes for insurance. Insurers also typically provide tables listing the key benefits and exclusions of regular policies so you can readily see what is, and just as importantly, what isn't, covered. You should now have a reasonable idea of what’s on offer and costs.
3. Don’t buy purely on price
Having done your homework, and with a few quotes in front of you, it’s time to pick the insurance that’s best for you. Take care here because the right cover for you might not necessarily be the cheapest on offer.
It’s a good idea to jump on the phone and ask questions so you can better understand exactly what’s on offer and any optional extras that might make sense for you. Chatting through your unique situation can help support your decision-making process, and ensure you get good value for the policy you end up purchasing.
Other considerations to check with potential insurers are provisions for extensive landscaping or if you have a lot of retaining walls. Levels of cover for gradual damage (for instance, damage caused by unseen leaks) also vary, so be sure you ask about this and that you understand the scope of what’s covered. Fixing a leak that’s got into your floor and walls can be an expensive business.
For personal motor vehicle, the choices are typically an agreed value set at the start of the policy, or whatever the market value is at the time of a loss. There are also many add-ons you can purchase such as excess free glass and windscreen cover. Make sure you think about which extensions are best suited to your situation. For contents insurance, you may have some particularly valuable items you wish to specify to ensure they are properly covered such as jewellery.
For properties, you don’t want to do all that hard work and realise further down the track that you’re under insured. Most policies in New Zealand are replacement policies up to a sum insured where the insurance company will pay for or repair your home up to a specified amount, particularly for damage caused by natural disasters such as earthquakes. Some insurance companies are moving to cover a total replacement value (based on the area of your house) for causes like a house fire and keeping the sum insured for causes from natural disasters.
A couple of hundred dollars more in premiums may well buy you an additional few hundred thousand dollars’ worth of cover. Ask yourself the value of a few dollars saved today compared to potentially being hundreds of thousands of dollars short if you ever needed to rebuild your home.
What to do once you’ve selected your policy
Once you’ve purchased your insurance policy, you must read it carefully. Be sure you know the ins and outs of your specific policies before you need to make a claim. That way you can address any questions or concerns you have with your insurer about what you’re covered for, and for how much, before anything happens.
Insurance is not a set and forget product. You need to review and understand what you’re covered for every time you buy or renew it. Circumstances change, rebuilding costs increase and it’s your responsibility to ensure you’re maintaining adequate cover.
Finally, insurance is a trust-based product based on honesty. You must answer the insurer's questions honestly and to the best of your knowledge. Failure to do so may result in your insurance being cancelled or claims not being paid.
This is an ongoing process, so if you have your car modified, have someone new driving it (especially if they are young or have anything less than a blemish-free driving record) or are having building work done on your home, let your insurer know in advance to ensure you’re covered. Lots of people also rent their homes out these days, even if just for a few nights a year, while others leave them vacant for weeks at a time. Your insurer will want to know about this too.
Keen to understand more about insurance? Head over to Sorted who have some great resources about insurance, or check out our Insurance Health Check page. We also have a range of Consumer Guides about specific insurance topics that you might find helpful.
Insurance is a product that you can buy to protect you against some risks.
When you purchase insurance, you transfer this risk to your insurer. Your insurer charges you a premium for providing cover for that risk. This is formalised in a legal contract known as a policy.
If an unexpected event occurs and it is covered by your policy, your insurer will either repair or replace the items that are lost or damaged, or pay you a sum of money.
When you take out a policy you will agree an excess. An excess is the amount of money you pay when you make a claim. Think of it like the small piece of risk you hold onto, with your insurer covering the rest.
You can insure yourself, your property, and your legal liabilities.
There are three main types of insurance:
- health insurance
- life insurance
- general insurance (such as property or liability insurance; sometimes known as fire and general insurance).
ICNZ only represents general insurers so the resources on this site are specifically about general insurance.
Insurance only covers sudden, unexpected and accidental events.
Unexpected events may include floods, earthquakes, a car accident, a house fire or theft. Insurance only covers things that happen suddenly, not gradually and is the biggest area of confusion for people.
A risk is a possibility of something bad happening.
It is important to understand what your risks are, what you can do to manage and minimise them, so you can have a plan in place if they happen.
Ask yourself what is important to you, what could go wrong, how likely is this to happen and what impact would it have on you. Then ask yourself what you can do to reduce or prepare for these risks, and where you have a gap that insurance can help with.
Ways to manage risk
There are four ways you can manage risk:
- avoid it
- accept it
- control it
- transfer it.
Imagine each of these in the context of a cellphone and the risk of damaging it. You can do any combination of these things to manage the risk of dropping your phone and each one has different costs and benefits.
- If you avoid the risk, it means either not buying a cellphone or not carrying it anywhere.
- If you accept the risk, you know you might drop it and what it will cost to replace if you do and you use your phone whenever you want to anyway. You may or may not put processes in place to save money for repairs.
- If you control the risk, you buy a case for your phone to protect it if you drop it.
- If you transfer the risk, you pay an insurance company to insure your phone, knowing that if you drop it accidentally then the company will pay to replace it for you (less your policy's excess).
A premium is the amount of money you pay for cover. There are many factors that are considered when calculating your premium, including:
- the characteristics of the asset being insured
- previous losses
- what is known about future risk/s
- reinsurance costs
- the influences of the global capital market
- the insurers’ own appetite for risk
- The insurers’ own costs of running its business.
How does your insurance premium reflect risk?
Natural hazard risks is just one factor that insurance companies take into account when calculating your premium. For home insurance, insurers will also be looking at things like the age of the property, how well it is maintained, and if wiring is up to date, for example. New Zealand has many natural hazards including floods, earthquakes, and landslips. Some places are riskier to live in than others, as they experience more natural hazards. Premiums reflect the future cost of covering an individual property.
An insurance policy is a legally binding contract between you and your insurance provider. It lays out what types of loss or damage the insurer will pay for and under what circumstances. It also outlines what sorts of events they will not pay for and what circumstances may result in them declining to pay.
It is important that you're honest with your insurer when you sign up for a policy. Insurers calculate risk based on the information you give them. If you choose not to tell them things that would increase the risk they're taking on, your insurer has the right to decline claims or cancel your contract. Likewise, if you don't tell your insurer about things that may decrease their risk, you could end up paying more than you need to.
If you're not sure what your insurer may need to know about, ask them.
The Fair Insurance Code (pages 8 and 9) sets out examples of the things your insurance provider will want to know.
Insurance is about putting you back to where you were before a sudden and unforeseen event happened.
Sometimes, to put you back where you were, insurers will depreciate items (have a portion of their original value removed based on their age or how much they've been used) to ensure you receive back only what you had before you needed to make a claim. In other cases, the amount paid out may be determined by how much it would cost to recreate what you have lost.
Our consumer guide on replacement and indemnity cover explains both concepts.
Insurance should work for you, so it’s important you regularly check it’s fit-for-purpose and covers what you need it to.
Check out ICNZ’s Insurance Health Check to walk you through what you should check for your house, contents and car insurance each year.
Because a policy is a contract, you have the right to complain if you believe your insurer has treated you unfairly or not honoured your policy. If you and your insurer can't agree on a resolution, you can take your complaint to a free and impartial disputes resolution scheme.