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Replacement v Sum Insured

By Kay Keam - 7 Aug 2013 - 1 comment

International re-insurers have been feeling the pinch from the fallout of the Christchurch earthquake. They now see New Zealand as a riskier bet and want to more accurately assess their future liability in the event of further natural disasters. So, gone is the golden era of open ended replacement insurance and in are the days of Sum Insured policies. Replacement policies are based on the size of the property. Sum Insured policies are for a specific sum. 

Most homes insured in New Zealand currently have a total replacement policy. This means that if your home is totally destroyed by fire or an earthquake, the insurer is responsible for demolishing the wrecked building and constructing a new house to the same size and specification as the previous one, with no limit to the amount they have to pay.

A Sum Insured policy on the other hand sets out a maximum amount the insurer will spend if a house needs to be rebuilt.

Within the next couple of months, most new home insurance policies provided by the majority of insurance companies in New Zealand will be on a Sum Insured basis. Existing policies will automatically move across to Sum Insured on their next renewal date. Homeowners are going to be asked to state the dollar amount they want to insure their home for, in much the same way as they would insure their contents.

It is therefore critical that you are aware of the cost of rebuilding your home. There are online calculators that can help assist with this, but be wary! While the online calculators helpfully take into account inflation, they begin to show their flaws when used to calculate rebuilding high value homes with unique features (think granite bench tops or gold taps). Other issues should be carefully considered, such as the cost of demolishing any damaged structure, and the expenditure associated with applying for a building/resource consent for a replacement dwelling. It is also the home owner's responsibility to update the Sum Insured amount to take into account the cost of rebuilding any new additions or alterations that may be carried out on the home.

If you have a particularly complicated house or one with expensive fixtures and fittings, you may want to get a quantity surveyor, registered valuer or certified builder to help calculate the Sum Insured.


Kay Keam


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As well as the value of the fitout or architectural design a big feature in any rebuild cost is the ground conditions and slope at the site as these affect the type of foundation needed.

Tim Wilkesreply

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