Home and Contents Insurance — A Complete Guide for NZ Homeowners

Home and contents insurance is the most important insurance policy most people will ever hold. It covers the largest asset they own — their house — and everything in it. Despite that, a significant number of New Zealand homeowners are underinsured, meaning the sum insured is not enough to rebuild the house or replace the contents at current prices.

The gap between what people think their house is worth and what it would actually cost to rebuild is wider than most realise. The market value of a house includes the land. The rebuild cost does not. A house on a expensive piece of land in a good suburb might sell for a million dollars but cost only half that to rebuild. The reverse is also true — a house in a regional area with cheap land might have a market value below its rebuild cost because construction costs are the same everywhere but land is cheaper.

Home Insurance — Sum Insured vs Market Value

Home insurance covers the cost of rebuilding the structure if it is destroyed. It does not cover the land value. The sum insured should be the estimated rebuild cost — what a builder would charge to construct a house of similar size, materials, and standard on the same section. That figure is typically different from the market value and needs to be reassessed periodically as construction costs change.

Most insurers offer a calculator or online tool to estimate the rebuild cost based on the house's floor area, number of bedrooms, construction materials, and location. The Cordell building cost calculator is another reference point. Getting a registered valuer or quantity surveyor to provide a rebuild cost estimate is worthwhile for larger or more unusual homes where the standard calculators may not be accurate.

An automatic sum adjustment clause in the policy increases the sum insured each year in line with construction cost inflation. Policies without this clause require you to actively increase the sum insured to keep pace. An outdated sum insured was a major source of underinsurance after the Canterbury earthquakes, where many homeowners discovered their cover was far below the actual rebuild cost.

Contents Insurance — What It Covers and What It Does Not

Contents insurance covers the items inside your home — furniture, electronics, clothing, appliances, jewellery, tools, sports equipment, and a long list of other personal belongings. The cover applies to loss or damage from a range of events: fire, theft, burglary, vandalism, storm, earthquake, volcanic activity, and accidental damage in some policies.

Most contents policies cover the full replacement cost of items, minus the excess, up to the total sum insured. Some policies have sub-limits on specific categories — jewellery, watches, bicycles, and portable electronics. If you own an engagement ring worth several thousand dollars, the standard sub-limit on jewellery may not cover it fully. Adding a specified item listing on the policy covers the specific item at its full value.

Contents insurance also covers items you take outside the home — laptops in a coffee shop, luggage on holiday, a bicycle locked outside work — up to a certain limit. The cover is not as broad as when the items are inside the house, but it provides basic protection for items that move with you during the day.

Natural Disaster Cover Through EQC

The Earthquake Commission provides cover for residential land and certain types of damage from natural disasters including earthquake, landslide, volcanic eruption, hydrothermal activity, tsunami, and storm or flood if the land is residential. EQCover is attached to your home insurance policy — the premium is collected through your insurer and passed to EQC. You do not need to arrange it separately.

The EQC cap for dwelling cover is a legislated amount. Damage above that cap is covered by your private insurer, provided your sum insured is adequate. The EQC cap applies per event, not per year. This structure means EQC handles the initial portion of a natural disaster claim and the private insurer covers the rest.

For contents, EQCover covers a separate fixed amount per household for damage from a natural disaster. Items covered include clothing, furniture, and electronics. The cap applies to the total contents claim, and items above that cap are covered by your private contents policy or not at all.

Regular Policy Reviews

A home and contents policy should be reviewed annually. The rebuild cost changes with construction inflation. The contents list changes as you acquire new items and dispose of old ones. The sum insured and sub-limits that made sense at purchase may no longer be adequate. A ten-minute check on renewal day prevents the most common type of underinsurance — being covered for last year's values with this year's risks.