By John Grant
It’s not that easy arriving at a correct amount to insure your contents. However getting it wrong has the potential to be a very expensive mistake.
If you are going to pay the premium, you really should have adequate cover.
Anything that is not fixed to the house is normally regarded as Contents and in most cases you need to allow for its replacement value, and that is not necessarily what you paid for it. So this means carpets glued or nailed to floors are part of the building while rugs, drapes and curtains are Contents, and in most cases are covered for replacement value. You will get replacement value, but only to the limit of the overall total sum insured you have selected for your policy.
To assist in coming to the correct sum insured, insurance companies provide valuation calculation guides. These take you from room to room and list items with a suggested value. You put your own value for each item and when finished total it to give a value that your Contents should be insured for.
However these are guides only. The values recommended vary significantly from one insurer to another.
For example, AA Insurance recommends an average Contents value of $67,800 while Westpac comes in at over $85,000. The guides for higher value properties range from $124,000 to $188,000, a 50% variation.
Getting the values right at the time you take out the insurance is very important as each year renewal is offered with the sum insured indexed according to the CPI inflation rate.
While the initial exercise is certainly time consuming, be prepared to be surprised at just how much the value reaches. Just the treasures one accumulates in the garage can add up to many thousands of dollars very quickly.
The level of under-insurance on Contents is significant. One insurer we spoke to suggested that two of every three people were either uninsured or significantly under-insured.
The complacency in insuring for the appropriate amount could well be related to the fact that only 1 home in 2,500 suffers a major fire each year in New Zealand. Our cousins in Australia are reminded of the risks of under-insurance far more frequently than we are, such as the two serious events that have happened in Australia in the last couple of years - the Victorian bush fires and the Queensland floods. Globally we have experienced earthquakes, tsunamis and even volcanic eruptions - reminders that the unexpected can and does happen.
If a major event was to happen in New Zealand then you really can't expect the Government to come to the rescue. The potential amount of losses will probably be far too expensive, even for them. The statutory cover for earthquake is capped at $112,500 for buildings and only $22,500 for Contents, and applies to properties carrying fire insurance cover and paying the Earthquake levy. Your Home and Contents policies will normally pick up the difference between repair costs and the Earthquake Commission cover, but only to the level of the cover you have selected. Guides are freely available and in most cases they can be downloaded from insurance company web sites.