Do your sums to avoid underinsuring your home and vehicles

Underinsurance is an increasing risk for business owners, sole traders and individuals. Whether you’re insuring your business assets, home or vehicles, it’s important to regularly check the sums insured covered by your insurance policies.

Set the right sum insured for your home

Your home is one of your most valuable assets so it’s important to have the right level of cover to protect you financially and provide peace of mind. For example, if you need to make a claim because your home is damaged due to a flood or fire, the amount of sum insured needs to be sufficient to rebuild your home to the size and standard it originally was (just prior to the loss).

Your sum insured should be set at what it would cost to rebuild your home, not the market or rateable value.

This dollar value represents the maximum amount the insurer will pay if your home is damaged or destroyed; taking into account inflation, demolition costs, professional fees and outbuildings to match the ones you lost.

Importance of reviewing your sum insured regularly

Given the rate of change in supply chain disruptions and rising construction costs over the past two years, your sum insured may have become outdated by the time of your policy renewal (generally every 12 months). Even if you’ve made no changes to your home since your last policy renewal, these external factors may mean that the cost to rebuild your home has increased.

Keeping your broker updated about your assets and any home renovation projects is a good way to ensure you have the right cover in place so there are no surprises when you need to make a claim. Any changes impacting your rebuild costs can be added to your insurance policies in real time.

So how do you calculate the sum insured for your home?

Use this free online calculator or contact your broker to discuss other options, like obtaining a professional valuation for insurance purposes.

Insurance cover for company & personal vehicles

You’ve invested a lot of time and energy to get the possessions you value and your vehicles are no exception. It’s important that you take the time to ensure your vehicles are adequately covered. Knowing what’s covered in your insurance policies means you know where you stand in the event of a loss.

We recommend that you notify your broker of any new vehicle purchase and check the market to ensure your existing vehicles have an adequate sum insured. This applies to both your personal or company vehicles. By ensuring your insurance policies are up to date, you can minimise your underinsurance risk, especially in light of vehicles increasing in value over the past two years.

TradeMe Motors data revealed that the price of used cars being sold online is increasing. The median price for second hand late model cars listed on the TradeMe website has increased from $41,990 in 2020 to $53,990 in 2022 (as reported in April 2022)*.

Traditionally vehicles have been known to be depreciating assets. What we are seeing now is that both new and used vehicles are in fact increasing in value. This change is being driven by the global supply constraints on new cars, the increasing cost of vehicle parts and the green-car legislation.

Options for vehicle insurance cover

Different insurers offer different levels of cover – vehicle settlements can be based on the vehicle’s market value or agreed value. Before confirming your vehicle cover and to help you set an accurate sum insured, it’s a good idea to research vehicles similar to yours on the market.

• Agreed value: The sum insured that you and your insurer agreed on when you took out your policy. The value will be reassessed at your annual policy renewal. It’s a good idea to review your sum insured regularly to ensure it accurately reflects the current value of your vehicle.

• Market value: Insuring your vehicle based on what it's currently worth in the market. If your vehicle is a total loss, insurers will generally obtain a pre-accident valuation (PAV) for your vehicle at claim time. The PAV will take into account the specific details and condition of your vehicle to determine what the market value would have been immediately prior to the loss.

Talk to your broker to check that your amount of sum insured is right for you.

*https://autofile.co.nz/supply-woes-increase-used-car-prices-