Changes to Home Insurance: What you need to know about Sum Insured

Aligning with international practice, most New Zealand insurers have changed their home insurance policies, from replacement of the home based on its area to replacement up to a specified dollar amount, known as the ‘sum insured’.  The new approach enables reinsurers to know the maximum they may have to pay out in the event of a large disaster. So what does this mean for homeowners?

Cost to rebuild your home
Every home and property is different and so it is the home owners’ responsibility to calculate the cost to rebuild their individual home and advise their insurer what the sum insured should be on their house insurance policy.  This is the maximum that can be paid in the event of a claim.

A 150sqm home could be basic, quality or designer.  Special features, materials used, the land the home is built on and location can all affect the cost to rebuild.  This is why it is vitally important that you allow time to research and calculate the rebuild costs (which should also include demolition costs, design fees and costs associated with compliance) for your individual property.

While neither Marsh nor our underwriters are in a position to advise you on your sum insured there are a range of tools that can assist you when determining this figure.  The Cordell online calculator may be a good starting point. It provides an estimated typical rebuilding cost based on the information you input, including size of rooms, building materials etc.  The ‘express version’ will only take around 5 minutes to complete, with a ‘comprehensive version’ that requires additional information taking only slightly longer.

The calculator has been designed by Cordell who have extensive experience providing construction industry information and tools to the international market.  The version available through the Vero website is based on the New Zealand building market and will provide indicative rebuilding costs.

For a more specific estimate on the cost to rebuild your property you may choose to seek advice from a quantity surveyor or valuer.  It is essential that any valuations obtained are for insurance purposes and do not include any market value component or land value.

Keep your policy up-to-date
Remember if improvements are made to your home it is likely to affect the cost to rebuild.  For example if you have built a pool, installed a heating system or added another room you should check that your sum insured reflects these additions and notify us of your new sum insured so we can update your insurance policy.

Key Points
• The 'sum insured' for your home should not include land –nor should you use the market value or rates valuation. 
 
• The sum insured amount should represent the total cost of rebuilding your home. This amount also needs to cover items such as; swimming pools, tennis courts, fences, garages, sheds, retaining walls, and driveways, as well as architect and design fees, demolition, professional fees and costs associated with compliance. 

• If in doubt double check the details of your home eg. size and building materials, before calculating your sum insured.  If you are relying on the number of square metres stated on your existing policy schedule, check this measurement is accurate.

• The sum insured specified on your Marsh Multicover schedule excludes GST.

• Your current house policy expires at a specified time and date which is detailed on your policy documentation.  If you have not updated your sum insured by this time, the policy will be based on a default sum insured until your insurer is advised otherwise.  This will not take into account the material of construction, quality, location or any other details of your home so it is important you don’t rely on the default sum insured.

• Remember you will need to update your insurance policy if you add value to your home which may increase the cost to rebuild.

Important Note 
This information is general in nature only. It does not constitute a recommendation, opinion or guidance as to the sum insured figure that is appropriate for your individual circumstances. It does not constitute a recommendation, opinion or guidance as to the relative merits of the current replacement cost insurance cover versus the new maximum sum insured insurance cover. For further information please contact your financial adviser. Whilst every effort has been made to ensure that the information is accurate, you should not rely on this information to make any financial decision