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What property buyers need to know about insurance

Buyers  |  5 December 2018  | By THE SETTLED.GOVT.NZ TEAM

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Your property is likely to be your most valuable asset, so it goes without saying that you’d want to insure it. If anything were to happen, like a fire or natural disaster, it can be hugely stressful both emotionally and financially.

Insurance isn’t something house hunters should think about after signing a sale and purchase agreement. Insurance should be right up there on your ‘to do’ list when buying a home.

Find out about the history of the property 

When you’ve found a property you’re interested in, ask whether the house is currently insured and whether there have been any incidents at the property that could affect its chances of being reinsured in the future.

If a licensed real estate agent is selling the property, they should be able to help you with information about the home, like its age, condition, size and what materials it’s made from – these are all details your insurer will want to know. 

Get quotes early on

A bank or reputable lender will usually want proof that you’ve arranged property insurance before settlement. Talk to different insurance companies and get quotes. Consider meeting with an insurance advisor, an independent expert who doesn’t work for any particular insurance company.

If you haven’t owned a property before but have contents insurance, contact the company that this insurance policy is with. Insurers want to be sure you’re a “good risk”, which is why they often ask questions about personal insurance history. Having an existing relationship with an insurer shows you’ve already been assessed in this way.

Understand that cover might change over time

Insurance firms have access to huge amounts of data about properties that they use to scope out levels of risk. For example, if the house is in an area that has been previously flooded, an insurer may limit any cover for flood damage. Asking insurers about past claims or exclusions will help you make an informed decision. 

Be conscious that insurance companies reassess the cover they offer over time. For example, due to the increasing risk of environmental damage, many insurers are reassessing how they cover coastal or cliff-top properties. As the risk changes, future premiums could go up, exclusions may be added, or insurance cover can be withdrawn. 

Decide how much you want to be insured for 

The most common type of insurance is “sum insured”. This means that you decide how much cover you want based on how much it would cost to completely rebuild the property.

It’s important to get this right - if it’s too high, you’ll be paying for insurance you don’t need and if it’s too low, the payout won’t be enough to rebuild your home. It can be helpful to talk to a registered valuer or quantity surveyor.

Earthquake Commission Claims

Check whether the home has been subject to an Earthquake Commission (EQC) claim. If it has, ask for more information, including whether the claim has been resolved and seek legal advice before signing a sale and purchase agreement.

In order to qualify for a claim with the EQC, you must have valid home and/or contents insurance, which includes fire insurance. If you’re looking at buying an apartment, check if this insurance is included in the annual body corporate fee.

Note that EQC doesn't cover damage to land from coastal erosion or damage to residential structures or contents from storms, floods or coastal erosion.

Read the fine print

If you can’t find an insurer willing to insure a property you’re interested in, sometimes it’s safer to walk away. If you do find a place that the insurer is happy to cover, make sure you read and understand the policy. Don’t leave any insurance matters to the last minute, or fail to read the fine print.

If the insurer agrees to cover the property, and your offer is accepted, let your lender know immediately. You need your insurance to start on settlement day, when the property becomes yours, even if you aren’t moving in straight away.

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