Most people are either underinsured or they have gaps in their cover

Is your home filled with cherished items? Are they adequately covered by your contents insurance? For most people the answer is "no". They're either underinsured or think certain items are covered that aren't.

Not long ago I wrote about home insurance and the fact that a lot of New Zealanders are going to be hugely underinsured after renewing this year. That article can be read here:

Contents insurance is also worth a look - it has plenty of gotchas for people who make assumptions or don't read their policies, meaning most of us.

Contents insurance typically covers you for accidental loss or damage to household and personal effects. That's anything in your home that isn't fixed - although there can be exceptions for such items as carpets and satellite aerials.


Most policies also cover your property when it's used away from home temporarily - but not if it's stored or in transit.

Cheaper policies sometimes limit the risks covered to events such as fire, flood, theft and burglary rather than "all risks". They may also limit the cover outside the home.

Most policies have what insurers term "bonus cover", which include things such as temporary accommodation if your home becomes unliveable, and/or the cost of replacing locks if your house keys are lost or stolen.

Most policies cover for new-for-old replacement of items up to a certain age, but the cheaper policies will only pay for the market value of an item.

There have been a few minor changes to contents policies since the Christchurch earthquakes. The most common is the cover for temporary accommodation has been made clearer, says Insurance and Savings Ombudsman Karen Stevens. Very few people - perhaps even the insurers - gave much thought to this cover before the earthquakes.

Another change, says Stevens, is that a small number of items previously considered "chattels" and insured by the contents policy are now part of building insurance cover. The most important one is carpets.

Historically, tacked carpets have been considered part of contents cover, whereas glued carpets have been covered under building policies, says Tracey Palmer, head of corporate communications at Tower. The other trap is that an insurer doesn't need to match the carpet in the rest of the house if just one room is damaged.

Claims can fall through the cracks between policies. One example is motor-vehicle accessories such as GPS devices, child car-seats and roof boxes that can be removed from the vehicle, says insurance consultant Phil Snookes. One insurer might cover these under the car policy and another under contents. I checked with my insurer and was told my roof box would be covered only at home "on a case-by-case basis", whatever that means.

For this reason, says Snookes, he has all his policies with one insurer - Vero - so that as much as possible they "dovetail" with each other.

There are many aspects of contents policies that people need to be aware of before they suffer a loss and have to claim. A perusal of the Insurance Ombudsman's files highlights some of the fish-hooks where there is a breakdown in understanding by the public.

One is the policy limits on certain items such as camera or video equipment, art works, stamp collections, jewellery, watches, cash and documents. The limits can be quite low. For example, my contents policy limits payouts for documents to $250. That wouldn't even pay to replace our passports if they were destroyed in a fire.

It's no use saying "I didn't know" when it comes to claim time. While policies do have some tricky clauses, most are pretty easy to read. For example, anyone with especially expensive jewellery insured through Vero needs to keep it in a safe from a reputable manufacturer that is anchored to the floor or wall. That's not difficult to understand.

In one case where a householder claimed $45,000 for burgled jewellery but was paid just $10,000, the Ombudsman agreed with the insurance company and said the owner had a duty to read the policy.

The Ombudsman gets a fair number of complaints about jewellery claims. Many relate to expensive jewellery worth more than the policy limits. Other claimants are turned down because they can't prove ownership of the jewellery or other items claimed. For this reason always make sure you keep receipts - even after warranties have expired, says Craig Dowling, head of corporate affairs at IAG NZ.

In the absence of receipts, taking photographs is a good idea. They can be stored online at websites such as Dropbox. But don't do what two complainants to the Ombudsman did - take photographs of the items after they were allegedly lost or stolen. In one case the policyholder claimed the photographs had been taken two to three years earlier, but a garden centre expert verified that the plants in the background of the photo had not grown in that time.

Another exclusion that catches jewellery owners is that they're usually only covered within New Zealand, says Snookes.

Some policies now extend to Australia and Pacific Islands.

Expensive items such as jewellery can be covered but need to be listed separately, says Suzanne Wolton, head of customer relations at AA Insurance.

With total loss claims, says Terry Jordan, operations manager at the Insurance Council, either the policyholder or the assessor needs to prepare a schedule of items that were lost. Just because the cover limit is $40,000, if you can't prove you had items worth that you don't get the full sum insured - although that is rare.

Insurers don't always pay out in cash, adds Jordan. In the case of more expensive items the company may provide the customer with a voucher to go and buy XY or Z from Noel Leeming, Farmers or a manufacturing jeweller and then make a cash settlement for the rest. The reason for this is that the insurance company gets discounts and may pay just $1000 for the $1500 television.

Another contents insurance trap is limits on "business equipment". That can include personal computers used for occasional work from home.

The limits can be as low as $1500, which for a phone, headset, laptop and desktop wouldn't be enough to cover many home offices.

Teenagers are dangerous beasts when it comes to contents insurance. Most policies don't cover children's belongings while at university or polytechnic. But some do - although sometimes only if they are in accommodation provided by the educational institution. The other risk with teenagers is that if they have a party when you're away and their mates steal or damage the property.

Most policies won't pay out if the person responsible for the claim being made was invited on to the property.

Another reason to read the fine print is that there may be items covered that you never anticipated.

For example, it's not unusual for policies to cover fraudulent use of a credit or debit card. Most policies also cover rural folk for liability under the Forest and Rural Fires Act if they cause a fire. I noticed that the Vero Maxi home contents policy had $10,000 of life insurance, if you die at home as a result of fire or burglary.

There is also usually public liability cover for damage to other people's property - such as the landlord's.

It's important for tenants to make sure that their policy includes this. If the landlord's house burns down and it's the tenants' fault they may be liable to pay for the full cost of the damage.

You may also not be aware that there is cover for the boarding of pets if you need to move into temporary accommodation following a claim.

Questions to ask when taking out a contents policy:

• Is my outdoor furniture covered?
• Am I covered for frozen food?
• Are bicycles and other sports equipment covered outside the house?
• How long is my temporary accommodation cover?
• Will my insurance cover unauthorised use of my mobile phone by a thief or burglar?
• Am I covered if my boarder or children's friends are responsible for a loss?