Minimise the Risk of Underinsurance

Underinsurance is a growing risk for many business owners, sole traders and individuals, accelerated by headline inflation, supply chain disruptions and rising construction costs.

Underinsurance is when your insurance cover is insufficient to cover the cost of rebuilding, repairing or replacing insured items following a claim. This is often the case when your insurance policy is not updated regularly (at least every 12 months), or you don’t have an adequate sum insured. Both scenarios can result in adverse financial consequences at claims time.

For businesses and individuals alike, it’s vital to regularly check the cover under your insurance policies to avoid falling into this underinsurance trap.

Set the right sum insured for your home

Should the unthinkable happen, it’s critical to have appropriate insurance cover and to set the right sum insured for your home. The sum insured is a dollar value representing the maximum amount the insurer will pay if your home is damaged or destroyed. It should be set at the cost to rebuild your home to the size and standard it originally was (just prior to the loss), considering many factors, including:

• Inflation
• Demolition costs
• Removal of debris
• Construction costs
• Professional fees
• Outbuildings

Some of these factors can use up a large amount of the sum insured before the rebuild commences.

Review your sum insured regularly

Given annual inflation in New Zealand has reached a 32-year high*, supply chain issues and rising construction costs, your sum insured may have become outdated by the time of your policy renewal (generally every 12 months).

“Insurers are now finding that inflation is increasing sums insured significantly (some as high as 30%), due to rebuilding costs like material and labour. Construction time frames are extended.” Tim Grafton, Chief Executive of the Insurance Council Te Kāhui Inihua o Aotearoa.

Keeping your broker updated about your assets is important to ensure you have the right insurance cover and there are no surprises at claims 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.

*Stats NZ Tatauranga Aotearoa: https://www.stats.govt.nz/news...