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You are here: Home / Blog / Are You Underinsuring Your House?

September 8, 2016 by markkreling

Are You Underinsuring Your House?

earthquake-damaged-house

 

Home Insurance has become more difficult for homeowners in the past few years, and a good broker should guide you through the process. Contact RDi to make sure you’re fully covered.

The Treasury has recently compiled a report on the transition to a Sum Insured policy wording from the old Full Replacement cover that insurers brought in as a response to the Christchurch quakes.

They found that NZ householders could be insuring their properties for too little an amount to replace them – by up to a staggering $184 Billion.

Though the burden would not hit all homeowners at any single time, and some would not lose at all, there are risks for thousands – and the government would be unlikely to step in.

“We concluded that under-insurance was a real issue across New Zealand,” said report writer James Sergeant, senior analyst, financial markets at the NZ Treasury.

“The estimates spanned a wide range, both in terms of the number of homes affected, and the amount of under-insurance. Our final assessment was that up to 85% of homes could be under-insured by an average of 28%.”

While Sergeant admitted that the $184 Billion figure ‘overstated the risk’, since a natural catastrophe such as an earthquake would be limited to one location not the entire country, and not every householder would need to claim to the limit of their cover, further investigation using EQC modelling produced some more realistic figures, still using the under-insurance assumptions identified.

“This produced a shortfall of around $135 million, which is far smaller than the national figure,” Sergeant said in the report.

“Most homeowners (95%) would not experience a shortfall at all, but the impact on some households would be severe, with several thousand households facing an average shortfall of around $40,000.”

Sergeant said their conclusion was that the Government would therefore be unlikely to be called upon to fill the gap, and new requirements of insurers and brokers would not need to be imposed.

This, however, puts the onus firmly on the homeowners to assess their rebuild values carefully – or risk losing out.

“The insurance industry needs to continue its effort to support well-informed home owner decisions on their sum-insured values,” Sergeant said in the report, adding that banks also had an interest in mortgage-holders having sufficient cover in place in order to protect the value of their collateral.

A number of online calculators are available to assess your home’s rebuild value, and RDi can take you through this process to get a report that can be relied upon in the majority of cases.

Where a home is architecturally designed, with high end features, a property valuer should be engaged.

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I am a RFA (Registered Financial Adviser) and my Disclosure Statement can be viewed here.
Rodney District Insurance Ltd is a member of Financial Services Complaints FSCL for any disputes that arise that cannot be resolved initially.

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