May 30, 2017
Rising Building Costs May Effect Insurance
Insurance brokers are warning that the increasing cost of building constructions and hire of home extension builders have left lots of property owners dangerously under-insured.
Recent natural catastrophes highlighted the need to inspect policy wordings thoroughly, said Jo Mason, president of brokerage group NZ Brokers.
Most owner builder insurance plans are now on a “sum insured” basis, where the homeowner and insurer settle on a set sum that will be paid out if a house is ruined in a disaster.
However Mason stated, with structure costs and gas installations and repairs increasing at a rate of in between 7 percent and 17 percent each year, what was a suitable amount of cover a number of years ago might be well below exactly what is required now to truly be covered.
QV approximates that the cost of developing a house that is more than 200 sqm increased 34 percent between 2007 and 2016.
There is no guarantee that the amount you are insured for will be enough to cover the cost of a total rebuild,” Mason said.
“What this means is that a house which cost $500,000 to construct just two years ago could be up to $185,000 more to rebuild today. Effectively the risk of the rebuild cost being greater than the insured value is borne entirely by the policyholder. It is crucial that homeowners are aware of what it would cost to rebuild their house from scratch, and review this regularly.”
She stated property owners were under-insured by an average 28 per cent.
“Homeowners need to avoid thinking that ‘it won’t happen to me’ and instead speak to someone like an insurance broker, who will educate them on aspects to consider when it comes to determining their house value.
“While many homeowners do not find the topic of insurance very interesting, they need to better understand the risks associated with cases like a plumbing emergency and having an inaccurate valuation in their insurance policy.”
“Finding you are under-insured is very traumatic. It is timely to remind everyone to make sure you have enough cover. The big question you need to get right is whether the sum insured amount is enough to rebuild your home in the event of a disaster.”
Mason said it was absurd to have actually a house guaranteed for less than its full value.
“It’s like saying you are not going to spend money on safety features for your car because you are not going to have an accident.”
Treasury released a report last year that estimated New Zealand households could be under-insured by approximately $184 billion.
- Read your home indemnity insurance policy for single storey additions and check that the amount you are insuring your house for would be enough to rebuild it.
- Examine that the sqm of your house and other structures on your home or business are recorded in your contracts precisely.
- Inspect that extra features of your home have actually been identified. This consists of fences, driveways, garages, sleep-outs, sheds, retaining walls and swimming pools.
- Answer the questions on your indemnity insurance brokers online calculator.
- If in doubt, ask a builder or amount property surveyor for their professional suggestions.