House insurance payments

If your house is insured for a lower amount than it would take to rebuild it, you could be seriously impacted financially if your house is badly damaged or totally destroyed. Read this guide to understand the types of cover available, what a sum insured policy is and how to avoid being underinsured. 

What is replacement and sum insured cover?

Your policy will set out the type of cover you have. If you are unsure, talk to your insurer. 

Total replacement means your insurer will rebuild or repair your house, including demolition and professional fees, if your house is totally destroyed.

Sum insured means your insurer will make a payment to you, up to the sum insured amount, if your house is totally destroyed.

If you have a sum insured policy, rather than a replacement policy, the sum insured is the maximum amount your insurer will pay if your house is seriously damaged or destroyed. The sum insured will be shown in your policy schedule. 

The sum insured you choose is not the price you paid for the home, its market value or rates valuation. It is the amount that reflects what it will cost to rebuild the house, including driveways, fences, other unique features and professional costs.

If the rebuild costs are more than the sum insured, you will have to make up the shortfall yourself.

Why is this an issue for consumers?

Prior to the Canterbury earthquakes, insurers generally provided replacement cover for houses. However, following the earthquakes, most house insurance policies now only provide cover up to the sum insured for earthquake damage.   

A house is one of your most important assets. You need to make sure you are insured for an amount that will allow you to rebuild your home, if needed. 

As the cost to rebuild increases over time, there is a risk of underinsurance if you do not check each year when your policy renews that the sum insured is still enough to cover all of the costs to rebuild your house. 

House web

Real life examples

Mr H’s* unfortunate fire

Mr H’s house was severely damaged by a fire after he put steak in a toaster to cook and left it unattended. The insurer accepted the claim and offered to pay the full sum insured of $400,000. Mr H said it was going to cost $600,000 to rebuild the house and that the insurer had not made it clear he had a sum insured policy. The IFSO Scheme confirmed that the renewal notice had provided all the details of the cover and this had been accepted by Mr H. The insurer was only required to pay the sum insured of $400,000 to settle the claim. 

*Names have been changed

Things to know about house insurance payments

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  1. Who is responsible for making sure the sum insured is the right amount to rebuild my house?

    If you have sum insured cover, the responsibility is on you, the homeowner, to make sure the sum insured is sufficient to rebuild your house.  Your insurer will pay up to the sum insured so, if it costs more than that to rebuild, you will have to cover the shortfall.

  2. How to work out your sum insured amount

    Most insurers will have a link on their website to a free online calculator to help you work out the cost to rebuild your house. The questions asked by the calculator are an indication of what features, finishes and fixtures your house has and help you get an estimate of your sum insured. 

    However, you may wish to obtain a more accurate opinion of the rebuild costs of your home from a builder, quantity surveyor or other suitable professional. Remember to check that the valuation you use includes any additional home features (like fences, driveways, retaining walls and swimming pools) and additional costs – see the list below.

    The Insurance Council of New Zealand has a detailed guide to calculating your house’s sum insured here. 

  3. The sum insured should include all the costs associated with rebuilding your house

    Rebuilding your house following damage includes a range of activities and costs. Some of the additional costs can include:

    • Demolition, clearing and removal
    • Professional fees
    • Council, resource or planning consents
    • Special foundations and structural elements
    • Costs to meet current building standards
    • Additional costs due to any access issues to the property. 

    Your sum insured should include enough cover to meet these additional costs. 

  4. Options to reduce your premium if you are increasing your sum insured cover

    It’s important you have the appropriate level of cover for your house, otherwise you will be underinsured when you need it most. However, increasing the sum insured on your house policy will usually also increase your premiums. Options to reduce your premiums can include:

    • Requesting a higher voluntary excess
    • Comparing the cover and premiums with different insurers and picking the best one for you
    • Asking about discounts for having multiple policies with one insurer.

    The Insurance Council of New Zealand provides more tips to reduce your premiums here. 

Tips to avoid problems

Read your policy

Check your insurance policy to understand the cover provided and the current sum insured. 

Check the square meterage of your house and other features

You may wish to physically measure the square meterage of your house and any other structures (like granny flats) to ensure it has been accurately recorded in online databases. 

Talk to your insurer if you are unsure about the cover for your house

If you are unsure of the type of cover you have for your house or the sum insured amount, talk to your insurer. Your insurer can provide more information and guidance to ensure you have an appropriate level of cover for your needs.