Home insurance for beginners

Like many Kiwis, your home may be your most valuable asset, so it makes sense to protect it from unexpected damage or loss. Home insurance does just that. Let’s take a look at the benefits of home insurance, how it works and a few things you should consider before choosing your cover.

What are the benefits of having home insurance?

Insurance can protect you against the unexpected costs of sudden, unforeseen and unintended damage or loss and from specific events, such as burglary, fire, flood and natural disaster. The purpose of a home insurance policy is to cover the cost of rebuilding or repairing your home if it is damaged or destroyed.

Your insurance may also protect you against legal liability. If you accidentally damage someone else’s property – for example, you experience a house fire which causes damage to the neighbouring property – and you are legally liable for the damage, your home insurance policy may cover some of the cost. At AA Insurance, we will pay up to $2 million for your legal liability for damage to other people’s property arising from the ownership of your home in New Zealand. Before purchasing insurance, it’s important to look closely at the policy wording and understand what’s included and what’s excluded.

Your insurer may also be able to help you get things sorted after an event. They may help you find temporary accommodation if your home is uninhabitable, organise the repair of your home or even the replacement of your keys and locks if your home is at risk following burglary, theft or loss. At AA Insurance, our dedicated team of insurance specialists are on hand to help you and ensure any damage covered by your home insurance policy is repaired or replaced as quickly as possible so that you don’t have to worry about it.

How does home insurance work?

A home insurance policy is an agreement between you and your insurance company. You agree to pay an annual premium and an excess at claim time, and the insurance provider agrees to pay for damage when you make a claim, up to the limit of your policy.

A premium is the sum you pay fortnightly, monthly or yearly for your insurance. An excess is the contribution you pay when you make a claim, and your insurer pays the rest of the cost to repair or rebuild your home. You can come to an agreement with your insurer on these figures, but it’s important to remember that, if you lower your premium by setting a higher excess, you will pay a higher excess amount at claim time.

When you take out home insurance, you will need to set a sum insured, which is an estimate of the total amount it would cost to rebuild your home. This becomes the maximum amount that many insurers will pay if your home is destroyed in a natural disaster, so it’s important it is as accurate as possible. At AA Insurance, unless the damage to your home is caused by a natural disaster, we will settle your claim using our replacement cover if you have taken steps to set an accurate sum insured and estimate the size of your home. This means that you’ll be covered for the full cost of the repairs or rebuild of your home.

When calculating your sum insured, other items on your property need to be taken into account, such as driveways, paving, fences, external garages and retaining walls. There are several ways you can calculate your sum insured, including contacting an expert such as a builder, architect or quantity surveyor. You can also use the online Cordell Sum Sure Calculator which estimates typical building costs for standard residential homes.

If you do need to make a claim, the way your home insurance claim will be settled will depend on how the damage occurred and the extent of the damage. At AA Insurance, if your home is destroyed or damaged in a natural disaster, we will pay up to the sum insured to rebuild it. If your claim is the result of anything other than a natural disaster, you may qualify for our replacement cover. This allows full repair, rebuild or replacement of your home (to the reinstatement condition) regardless of the sum insured, provided all reasonable effort has been made to correctly estimate your home’s current rebuild value. Your sum insured should be regularly reviewed to ensure it is accurate and up to date. Your house could be repaired, rebuilt, or you could be paid the equivalent cost of the repairs or the full amount of your sum insured.

Your claim will be closed once the repairs on your home are finished or you have received your final payment. You can find out more about AA Insurance's home insurance claims process here.

Other things to keep in mind

Terms and conditions: before choosing a policy, make sure you familiarise yourself with the policy wording so that you understand the terms of the cover and its limits. Pay attention to benefit limits, which are the maximum amount per claim that is covered for some item categories. Another thing to look out for are the list of inclusions and exclusions in the policy document.

Optional extras: insurance policies often have standard benefits that are automatically included with your policy, and optional benefits which you can choose to add on to provide you with additional cover at an extra cost. At AA Insurance, we offer the optional extra of excess-free glass cover on home insurance policies, which means you won’t need to pay any excess if a claim is made on glass for windows, doors and built-in furniture.

Discounts: it’s worth checking if any discounts are available to you. Sometimes, the more insurance policies you have with one insurer, the more discounts you may be able to accumulate, such as AA Insurance's Multi Policy Discount for customers who have more than one eligible policy.

Convenience: having all your policies (such as car, home, contents or landlord) with the one insurer can also make claim time less stressful, and if your claim is for the one event, you may only need to pay one excess. At AA Insurance, we offer our one event, one excess benefit across car, home and contents insurance policies so, if you're insured with us and a burglar damages your home and steals your valuables, leading you to claim on both your home and your contents policy, you may only need to pay one excess.

Your responsibility: home insurance is designed to cover sudden and unforeseen damage, and most insurers will not cover damage that occurs over time, such as gradual damage and wear and tear. You must, at your cost and expense, maintain your home in good repair, secure it and take reasonable care to prevent a claim.

Key takeaways

Home insurance protects you from the financial burden of unexpected damage or loss, as well as any legal liability arising from the ownership of your home. You can work with your insurer to determine your premium, your excess and your sum insured, which is the maximum amount we will pay to rebuild your home after a natural disaster. Claims will be treated differently depending on the extent of the damage and whether it was caused by a natural disaster. Different policies will have different exclusions and inclusions, so it’s important to look closely at the policy wording when purchasing a policy to make sure you won’t have any surprises at claim time.