Having insurance is important to protect your assets and give you peace of mind – but insurance contracts can often be hard to understand. Tim Grafton, from the Insurance Council of New Zealand, explains some common terms that could trip you up.
What is an insurance premium?
An insurance premium is an amount you pay your insurer each week, month or year for the cover they give you.
It’s based on how much what you’re insuring is worth, and your insurer’s calculation of the risk of you needing to claim. Your premium helps your insurer run their business and covers a portion of what it will cost them should you make a claim. A premium is separate to any excesses you may have to pay.
Premiums are made up of different parts. Generally, a house or contents insurance premium includes:
• a portion you pay for the risk posed and the value being insured
• a portion that contributes to the costs of running the insurance company
• a portion that covers the cost of the reinsurance insurers are required by law to hold
• levies to fund the Earthquake Commission and Fire Service
What is an insurance excess?
An insurance excess is an amount you pay towards repairs or replacement of your possessions when you need to make a claim. It’s the portion of the risk you take on yourself and is factored into how your premiums are calculated. The higher your excess, the lower your premiums will generally be. You may have different excesses for different types of accidents.
Because you need to pay the excess yourself, you can’t claim for anything that will cost less than that amount. For example, if an accident caused NZ$350 of damage to your car and your excess was NZ$500, the portion you pay (the excess) would cover the repairs, so you wouldn’t need to make a claim.
Your excesses will always be listed in your policy documents.
What is disclosure?
‘Disclosure’ is the information you have to give your insurer to help them understand your risk. Your insurer will ask questions to help them understand you and what you’re insuring. It’s important that you answer these honestly – if you don’t, it’s considered fraud.
Giving details isn’t just about your insurer charging you more. Some things you tell them might lower your premium, such as if you have a monitored house alarm.
Even if your insurer doesn’t ask you about everything, it’s best you tell them anything you think might be relevant. To help you understand what might be relevant, ICNZ’s Fair Insurance Code lists things you need to disclose.
What is gradual damage?
Insurance is for sudden and unforeseen or accidental damage. That means anything that happens gradually isn’t covered. Examples of gradual damage include slow pipe leaks and rotting weatherboards – unless those things happened because of a sudden accident.
We recommend you check the condition of your house regularly and keep on top of any maintenance to decrease the likelihood of gradual damage.
First published 3 October 2018
Story by Tim Grafton, chief executive of the Insurance Council of New Zealand
JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.