How to check whether your assets are well insured

Houses, possessions, cars, lives; How do you know if you have insured them for their real value?

A report from Lloyds of London indicates worldwide there is an insurance “gap”, with people not having enough insurance to cover themselves in cases of loss from things like natural disasters, although many of the least insured countries are poor countries.

Sure, an insurer would say that, and as countries go, Lloyds found New Zealanders to be among the most diligent buyers of insurance in the world, probably as a result of us living on such shaky lands.

The big four of insurance are house, contents, car, and life.

READ MORE:
* Lloyds’ report ranks New Zealand second for risk
* Treasury report says underinsurance problem is widespread

HOUSE

For most people, this is their largest physical asset.

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We fill our homes with possessions, which are a form of wealth we seek to protect.

After the Canterbury earthquakes, house insurance policies changed. They went from “total replacement” to “sum insured”. Now people have to tell insurers what they want their homes insured for, or accept their insurer’s computer-driven estimates.

Homeowners can either pay an expert quantity surveyor to assess the rebuild cost of their house, or they can go on to an online calculator (insurers offer them), and it will make the estimate for them. While homeowners are expected to rely on them, the calculators all have legal disclaimers, just in case it turns out that they are wrong in individual cases.

The Need to Know website, paid for by insurer IAG, has advice and information on assessing the value of your home.

Among the advice is this warning: “As construction costs can change, it’s a good idea to check your sum insured amount at least annually.”

People whose homes are destroyed, and who have accidentally under-insured, may have to build smaller homes in their stead, or borrow to bridge the gap.

CONTENTS

There are plenty of online contents calculators from banks and insurers.

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We work hard to buy our homes, so we insure them to protect the investment.

To use them, simply go from room to room in your place, estimating the cost of replacing your stuff, and plug it into their calculator, which will add it all up for you.

If you can’t be bothered, some calculators give you “average” and “above average” sums for home contents. AA Insurance, for example, has $87,350 as “average”, and $245,390 as “above average” for contents.

Sounds easy? It isn’t. For a start, there are different policies on the market, including “new for old” advanced/comprehensive policies, and “old for old” bog standard policies.

You may also not care if many of your possessions were destroyed, and feel that you would not even bother replacing many things, should they be destroyed, and take a decision not to insure them all.

Or you may have some possessions you really care about, and which you have to notify the insurer you own in order to have them fully covered.

Collections, valuable art, and valuable jewellery fit into this category.

CAR

Insuring your car means you should be able to get motoring again, should you have a crash, and also pay for any damage you cause to someone else’s property while driving. There are two types of policies out there. Agreed value and market value. Agreed value will pay an agreed amount should your car be totalled, with the agreed sum agreed each time the policy renews. Market value is the value the car had for resale, the moment before it crashed.

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Our cars are often our second most valuable possession.

Tower’s guide to the difference is helpful.

Some people don’t understand what they are covered for, as this before the Financial Services Complaints scheme shows.

Your insurer can help work out what your car is worth. You can go on TradeMe and see what similar cars are selling for, pay for a report from the likes CarJam or RedBook, or ask Turners for an estimate, pretending you are intending to sell your car.

Merely paying a premium does not mean you have effective insurance cover.

As with all insurance, it is terribly important you tell the insurer everything it needs to know. If you fail to tell it you were convicted of drink-driving, for example, you may find the insurer declines any claim you make, and tears up the policy.

All insurance requires policyholders to do things to minimise the chance of making a claim. Should you crash with bald tyres, for example, your insurer is likely to decline the claim on the basis you failed in your duty to keep the car roadworthy. This would result in 100 per cent underinsurance.

Life

What is your life worth? It’s an impossible existential question. Less impossible, however, is working out what money your loved ones would need to carry on should you die tomorrow.

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Life insurance is there to help our loved ones manage, should we die.

The simplest way to get an estimate is to go to an insurance adviser, who will want to talk to you about trauma and income protection as well. Always remember when dealing with advisers, to be clear about how they are paid.

The more insurance an insurance adviser sells you, the more money they make, if they are paid through commission.

The other way to work out what to insure your life for is to work it out for yourself, using online calculators.

These will ask you to tell them about the various aspects of your life (debts, income, dependents, what they’d need to live on, and for how long, etc.)

Essentially, though when it comes to life insurance, the question you need to answer is: How much money do you wish to leave to ensure your loved ones can cope?

Very few people can afford all the insurance they might want. They may want to leave enough to clear the mortgage, and replace their income until the last of the children is 21, but have to opt for less.

This content was originally published here.

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