The new House Insurance - how do you actually set it up?

In previous newsletters, we have advised you that the way that your house insurance works is changing this year.  There has been some publicity about this in the media and in the newspapers.  We have given mentioned that you need to be aware of the changes and make sure that you review the 'value' of your house for insurance purposes when you get your insurance renewal notice.
We received our first renewal notice - for the house that Moneyworks operates out of in Turangi.  It is a standard 3 bedroom property, which is timber lined, which we have insured as a commercial property.  We thought it would be useful to share our experience with making sure that the property was properly insured.
The office has a 3 bedroom 'initial' house (timber lined), with a double garage which is separate.  The current market value is around $180,000. 
The notice that we received from the insurance company had taken the size of the property, and worked out what the rebuilt would be based on $2,000 per square metre.  We then received the bill based on this value.
We then went through the calculators online, looked at the valuation that we had received from the valuer when we purchased the property several years ago and then had a long discussion with our Fire and General Insurance Broker.  Finally we came up with our insured value (and then received a bill which is around 4x the premium we paid last year, but at least we are confident that we can rebuild the property within this cost if it is demolished by fire, volcanic eruption or earthquake!).
Here are some of the pointers that we picked up along the way for your reference.

1. The insurers are calculating rebuild costs on how much it will cost per square metre each building, as a result of the Christchurch earthquake, the base level has increased from $1750 to $2000 per square metre.

2. But, the actual cost per square metre of any rebuild will depend on the quality of the house and materials used.  It could be far more than this if you have a historic house, or if you have expensive fittings.

3. Any sloping sections, access to property and retaining walls will add to the overall cost of the rebuild and need to be factored into the final cost of rebuild.  For example, one of our properties is built at the base of a hill.  If the hill slipped, then there would be no drive, so access would be extremely difficult.  When the insurance renewal for this property is due, we will get a specialised insurance valuation to work out the cost of rebuilding it.

4. You need to factor in the cost of rebuilding any driveways and pathways, fencing and landscaping, and external decking.  Our first draft of costs for the office forgot these costs.  These can be quite expensive items.

5.  Don't forget about the cost to rebuild any outbuildings, garages and garden sheds.

6. Other costs to be factored in are the design and engineering costs andcouncil consent fees which can be substantial.

7. Finally  remember to include the costs for demolition and dump fees. For us, we calculated that there was a cost of at least $10,000 for dump fees! 

Some of the things that we learned from our Fire and General Insurance Broker (Bridges Insurance) that concerned us.

Bridges are specialist Fire and General Insurers and they are dealing with people addressing the issue of insuring their homes under the new regime every day.
These are the comments that they made that you need to be aware of:
1. Fire and General insurers may offer a negotiated lump cash settlement, this will be based on the accessed depreciated value of the house, not the value the owner has insured for rebuild. This is not necessarily the best option for you, and we strongly recommend that you consider having a specialist insurance broker who will be able to assist you.  We can refer you to Bridges if you wish.
2. If the rebuild costs less than the amount insured the Fire and General insurer keeps the surplus. On the other hand any shortfall is covered by the house owner. However, in our opinion, it is better to be slightly over insured than under.
3. Unless you are prepared to get a surveyor in to do a costing (which is what we will do for our property at the bottom of a hill), you will need to go online and use several of the calculators.  To do this you need to know the relevant house details. Rebuild value is different than market value or rateable value, in many cases the rebuild value is more than the current market value. It is important that you do the calculations..
The main online calculators are:


Final note:

Talking to our fire and general insurance broker - he said that it was of concern that only 20% of his clients are actually reviewing the rebuild values when their renewal notices come.
Of those around 10% are changing level of cover - some of them actually decreasing the cover.
Yes your  premiums are going to increase. However in a few years many houses are going to be under insured!!, which means that your insurance is more or less not worth having.
Other articles that you might be interested in on our blog:

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By Carey Church


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