Insurance can keep you and your family from financial ruin. But how much do you really need? How should you prioritise different types of insurance? And what are some of the common mistakes people make when buying insurance? In part six of a Herald series, we asked Tom Hartmann, managing editor of Sorted, financial adviser Peter Leitch and the Insurance Council of New Zealand to answer reader's questions.
With home and contents insurance is it standard practise for home and contents to be treated separately in an insurance event? For example if you have a burst pipe and the house suffers damage to walls and framing as well as the carpet and furniture being damaged?
ICNZ: Yes, excesses apply to each policy so if you need to claim under your contents policy and your house policy then this can be two excesses. However, if you have taken two policies with the same insurer, be it house and contents or car, some will agree to waive one or more excess (usually the lower excess might be waived). Check the excess clause of your policy wording to see if this might be applicable for you.
Do children's car seats come under car insurance or contents? There seems to be some confusion as to where a replacement claim sits.
ICNZ: This can differ between insurance policies, so it pays you to check with your insurer what you're covered for. As a general rule motor vehicle accessories are usually covered under a car policy when they're in or attached to the vehicle but excluded when they're not in it or attached to it (which is when they may be covered by contents insurance). There may be exceptions, with some policies not covering accessories at all and other policies may state a maximum value that can be paid.
With travel insurance if you've had an operation and are due to travel what should you tell your insurance company about that operation and the potential risk of blood clots associated with the surgery?
ICNZ: While many policies will have a list of pre-existing conditions that are automatically covered, you should tell your insurer what surgery you've had, what it was for and answer any questions they might have. They can then make a decision whether to provide cover for that risk and if any terms and conditions apply.
Does comprehensive car insurance include GAP insurance?
ICNZ: GAP (Guaranteed Asset Protection) Cover is usually offered by car dealers when selling vehicles requiring finance to cover the 'gap' between market value and the amount of finance owing. This policy covers the difference (the gap) between what the insurer of the comprehensive motor vehicle insurance pays out in the event of total loss of the insured vehicle, and the balance outstanding on the finance contract. Gap cover is especially relevant for a person financing a vehicle with a low deposit.
What is the best way to negotiate a way to reduce my premiums?
PL: When it come to personal life insurance you can seek alternative insurers – some insurers are stronger with pricing at younger ages, or with smokers. You may be able to get a lower premium with a new insurer, or indeed your existing insurer, depending on how long the policy has been in place. You must be careful changing insurers though as it does represent a cancellation of an existing legal contract, and the start of a new one, and the new one will be based on your health and occupation at the time that the new policy has been put in place. Not always, but often, people's health does not get better as they get older, so it's important to be very careful and to disclose fully health, pastimes and occupations when applying for new cover. If you were a smoker when your first took your policy out, but are now a non smoker and have been for more than 12 months, you are entitled to apply to the insurer for a change in the premiums to non smoker rates. Different insurers have differing rules around this, but is worth exploring if this applies to you.
Is it worth having trauma insurance when we already our insurance already covers life, health, disability and income protection?
PL: It really does depend on a person's individual circumstances. There is only so much money that people can spend on insurance and it is about exploring the consequences in these various areas and making an informed decision on where to allocate the money. Over time this allocation will most likely change. Some people feel more comfortable with higher levels of cover than others. No one is right or wrong, rather it is about understanding and being comfortable spending a good deal of money every month on something that you really don't ever want to use. It should never be about 'did I get my money's worth?'. If you are using your insurance, it is because something has gone wrong. As advisers we can help people identify and discuss risks and issues that they would not normally want to talk about. It's important to have a review of your cover – and make sure you are still happy with your cover and that it continues to provide you with peace of mind.
I live in a five story apartment block. The body corporate insures the building and I have contents insurance for the apartment I am living in. My question is about who is liable for damage to other apartments in the block in the event of a fire or flood emanating from my apartment?
ICNZ: You can be held legally liable for any damage you accidentally cause to anyone else's property, and contents insurance will provide you with liability cover. If you caused the fire or flood damage to neighbouring apartments through your negligence, then you could be held liable for the cost to repair any damage to them. It's important to point out that the cost to repair damage isn't necessarily the same as the 'market value' of an apartment. If requested some insurers will extend the liability cover under a contents policy to a higher limit.
I am living in a care home but own a car that is parked on my premises at home. I no longer drive but I continue to pay insurance on this since I am concerned that it may get damaged between now and when I manage to have someone sell it for me. Do I need to keep insurance on my car if I am not driving it or would home insurance cover this?
ICNZ: While you might not be using it, we would still recommend that you have insurance to protect it from risks such as theft or damage caused by someone else, and to ensure it is covered if someone else has to drive it to arrange its sale. You would need car insurance as it will not be covered by home insurance. Chat to your insurer about what policy might be best and be sure to disclose that you're not driving it or if it isn't kept where you are living.
Is it true that insurance companies in New Zealand are reluctant to offer home insurance to apartment owners or owners of units after the Christchurch earthquakes? How does an apartment owner/ owner of a unit obtain home insurance under such conditions?
ICNZ: Apartment insurance is still readily available in New Zealand. In areas of high seismic risk it can be more challenging and premiums may reflect this risk so it pays to shop around or talk to a broker. If an apartment has a body corporate, they will all be insured under the one policy which the body corporate arranges. ICNZ recommends that you research the resilience of an apartment in a high seismic risk area. Check for features such as base isolation and if it is under a commercial policy which can have a higher excess and different EQC cover.
What is the difference between mortgage protection and income protection insurance?
TH: One is to make sure that the mortgage gets paid in the event your circumstances change, the other is aimed at protecting your future lost earnings, which you should think of as an asset in itself even though you haven't earned it yet.
Do insurance companies use information against you that is decades old? ? For example - if I had the odd cheeky cig in my 20's - will it count against me in my premiums a decade on?
TH: Typically they are concerned with your smoking habits now or recently, which would indicate that you are more at risk and need to be priced differently to manage this added risk.
Is pet insurance worth it?
TH: Pet surgeries can certainly run into thousands and even tens of thousands. So think about what you're aiming to cover with this product – your money. This way you don't get stuck with a major bill and it completely derails your finances. That said, many people decide to "self-insure" for their pets (I certainly do), meaning set aside money in order to prepare for anything unexpected for our furry friends.
When you get into a car accident, what are the key things you should note down/do?
TH: Find out the other person's ID and as much about their insurance as possible. It helps to take photos, find witnesses, too. Definitely get their phone number!
Is there a right age for life insurance?
TH: Life insurance is traditionally on a lag – we tend to wait too long to get it, but then end up hold on to it too long as well. This means we end up paying more than we need to in premiums, which typically step up over time. The key thing is to focus on what life insurance does for you – it is designed to protect the people in your life, those you're closest to. When you have dependents, such as kids or parents, it makes sense, but when they are not in your life or have become independent, it may no longer make sense to keep it.
Insurance - are you covered?:
Monday: What you need and what you don't
Tuesday: House, contents and car insurance
Wednesday: Health insurance
Thursday: Life and income protection insurance
Friday: Travel insurance
Saturday: All your insurance questions answered plus the best tips and advice from the experts