Picture this: if a student or group of students having a party damage their landlord's property, they are responsible for the cost of repairs. If the house has burned down and the flatmates were at fault they could start their working life hundreds of thousands of dollars in debt or even bankrupt.
"In our experience, the awareness of this liability risk seems very low among this group and can be a significant personal exposure," says Richelle Pirie, of Tower.
The two most important rules in insurance are "never assume" and "read the policy". In the case of contents insurance make sure that you are in fact covered for liability. If not get a different policy.
Another problem facing students is that parents often assume that their household insurance will cover their children while away at university. Quite often it doesn't, says Susan Taylor, chief executive of dispute resolution service Financial Services Complaints (FSCL).
Both State Insurance and Tower, for example, cover offspring who are in hostels/halls of residence under the parents' policy. But it doesn't cover students who go flatting.
With State, students who move into a flat but return home to their parents during holidays are still covered. If they don't return home in holidays they need their own policy.
New insurer Youi has an optional "away from home" extension on the parents' policy if the student stays elsewhere. Or the student can get their own contents policy.
Always make sure you read the terms, conditions and exclusions. If, for example, you leave your iPhone in a locked car overnight, is it covered? Would it be covered if it was stolen from your table in a cafe? You don't want to find out after you make a claim.
Many students will need car insurance. Kids' cars are often insured under their parents' names in the belief that it will save money. However, insurance policies are priced on the main driver. If the main driver is the child, not the mother or father, and the insurance company is not told it will not pay out at claim time.
This is even if the student is a named driver on the parent's policy. That's because insurance is based on trust and if the parent didn't declare that the student was the main driver the insurance company was being deceived.
Not only will the claim be declined in such a case, the parents won't even get the premium back. "Mothers in particular think they are doing the right thing to take out insurance for their son," says Stevens. Instead they are throwing money away.
If you can't afford comprehensive insurance on a car or motorbike, consider getting third party insurance or third party fire and theft. At least you'll be covered for any cars or property you damage.
Otherwise, if an uninsured young driver hits an Audi or Lexus, they'll be liable for a substantial amount of money before even graduating and starting to earn an income, says Pirie.
Third party insurance usually costs less than one beer a week at the pub.
But as is pointed out by the Insurance Council, which has recently published an insurance guide for students, if a car or motorbike is needed for part-time work, then it might pay to insure it fully.
Money is almost always tight for students and sometimes they will need to weigh up the chances of something happening versus the cost of the premium.
Most insurance companies offer discounts to attract cash-strapped students. The insurance buyer might, for example, be able to choose a voluntary excess, which lowers the premium. Or money can be saved by buying online.
Contents insurance usually comes in basic or comprehensive forms. At State, for example, there are Comprehensive and Essentials policies. The cheaper Essentials policy pays out present value, not replacement, if a claim is made. If, for example, your two-year-old $600 phone that is expected to last for six years is stolen, you'll get $400 less the excess back. That's because it's a third of the way through its life.
Students travelling overseas in the holidays, for a semester, or for an entire degree need to get insurance.
It's important to check whether New Zealand-based travel insurance will provide cover if studying overseas. It doesn't always. It may be necessary to get a student policy in that country.
Across the ditch New Zealand students qualify for free state health care - although it's slightly different according to whether the student is a visitor or is living in Australia. They will still need to insure their belongings. In most other countries they'll need to get overseas health care insurance, which is often bought in the country where they study. There are some policies here such as Student Care Insurance that might work for them.
Care should be taken to understand the fine print. Both the Ombudsman and FSCL have dealt with complaints from overseas students who have bought insurance here that didn't cover them come claim time. One, for example, had a pre-existing medical condition and didn't realise she wouldn't be covered for related treatment.
Whatever insurance is bought, beware of the exclusions. For example, a student who complained to the Insurance & Savings Ombudsman had his claim declined because his belongings were stolen from an unlocked premises. It's not uncommon for claims to be turned down for that reason. Nor is it uncommon for young people to have claims declined where partygoers in their house have stolen items or caused damage. Claims cannot be made when guests are legally on the property, says Stevens.
Another common problem is young drivers breaching the terms of their driver licence. Stevens found herself giving one restricted driver an earful recently when he arrived at her home with a passenger in the car. Had there been an accident the insurance policy would not have paid out. It's the same with drink driving. The limit for drivers under 20 is zero. If you have any alcohol in your system when you have an accident the insurance doesn't pay out.
In other insurance news, Vero announced this week that homeowners insured with the company will get extra cover of up to 10 per cent of the sum insured if their homes are destroyed by a natural disaster if rebuild costs exceed their sum insured amount.
