Understanding insurance: key terms, coverage limits and why it matters

What is Insurance?

Insurance is arranged to protect you financially against unforeseen loss or damage.

A person or business (the Insured) proposes to transfer the risk of an unforeseen event happening to an Insurer. In return, the Insured pays the Insurer a premium. This agreement is formalised into a legal contract (a policy).

If an unforeseen event covered by the policy causes loss or damage to the Insured or their property, the Insurer pays for the cost of the loss or damage.
Insurance is intended to put you back into the same financial position you were in, prior to an event occurring.

Accidental and Unforeseen events

An accidental and unforeseen event can be any event that the Insured or Insurer would not expect to happen. The more likely an event is to happen, the higher the risk taken on by the Insurer. Accidental and unforeseen events may include things such as natural disasters, car accidents, house fires, burglary or spilling paint on a carpet.

It is important to note that insurance will not cover everything and almost always excludes damage caused by wear & tear, damage occurring over a period of time and intentional damage by the Insured. In all cases, the Policy Wording will set out the basis of coverage and note what risks are and are not insured.

What isn’t covered?

Insurance has limitations and it’s important to understand that not every risk or cause of loss can be insured. This could be things such as worldwide pandemics, terrorism, war, business failure, repossession, bad debts, items becoming obsolete and losses that can’t be quantified or proven, amongst others. If you have concerns about a specific risk or circumstance, please speak to your Broker.

Why use a Broker?

As a Broker, our job is work with you to discuss your current situation and then arrange appropriate insurance coverage to help manage your risks. This involves talking to insurers, obtaining quotes, negotiating terms and providing professional recommendations. We also work as your advocate at claim time, helping guide you through the process and working to get you the best outcome possible.

In most cases, we earn a commission from the insurer upon placement of a policy. We may also apply a small Administration Charge which enables us to carry out our broking functions, maintain our Professional licences and ensure our staff remain up to date with professional development and qualifications.

Duty of Disclosure

When you buy insurance, the Insurer calculates their premium based on the information that you disclose to them. You have a legal Duty to disclose all detail that they ask for as well as making them aware of any additional information that may increase the risk. This Duty exists at the time you take out the policy and at every policy renewal.

This Duty includes disclosing any previous accidents / incidents (whether or not a claim was made), any previous criminal or driving convictions or adverse insurance history such as fraudulent or declined claims. If you’re in doubt about what should or shouldn’t be disclosed, it’s always best to be upfront and disclose.

Sum Insured

This is the amount of ‘risk’ that you are transferring to the Insurer, in exchange for paying your premium. In most instances, the Sum Insured is the Market Value of a Vehicle, the Replacement Value of a Building or Contents and the Limit of Indemnity under a Liability policy.

You have a responsibility to ensure that you are accurately insured and that you review your Sums Insured each renewal and make changes as appropriate.

Insurer Premium

Premiums are calculated using many different factors, such as the type of cover, value and location of the item being insured. Other factors also considered are the age of the Insured, previous claims history and criminal convictions. Because there are so many factors involved, quotations are specific to each situation and cannot be transferred between parties.

Policy Excess

This is the amount of money that you contribute towards a claim. This is agreed when you take out or renew a policy. The amount of Excess may differ depending upon what is being claimed for and the circumstances of the loss.

EQC Cover and Levy

In New Zealand, there is a fund managed by the Earthquake Commission (EQC) that is used to cover residential home damage caused by Natural Disasters. The EQC Levy is charged on every insurance policy that insures a house or self-contained unit. The Levy is set at $480 + GST per Unit and provides cover up to $300,000 + GST.

Fire & Emergency Levy (FENZ Levy)

This is a Government Levy that is applied to all insurance policies in New Zealand that provide fire cover on physical assets such as business and personal property, motor vehicles, mobile plant and construction risks. The Levy is charged at a flat rate for Houses, Household Contents and Vehicles <3.5T and for other risks is based on the value of the items insured.

Policy Schedules and Wordings

Insurance Policies are legal documents, which you need to read and understand. The Policy Schedule will contain the specific details of what you have insured, the dates of coverage, the policy excesses and Sums Insured. The Policy Wording contains the terms and conditions of the Policy coverage. These two documents need to be read together. They may contain jargon or legal terms you haven’t come across before or don’t understand. If in doubt, please speak with your Broker.

Your Responsibilities

If something goes wrong, you must do your best to put things right. Insurance can help cover the costs of a loss, but it cannot carry out the whole task of getting everything repaired, replaced or resolved. Please make sure you tackle problems head on and be pro-active in remedying damage and preventing further loss. You must let us know as soon as practical; any delay may adversely affect your claim settlement.

Your Rights

As your Broker, we will act and advocate on your behalf in respect of all claims you may make. If you believe your Insurer has treated you unfairly or not honoured your Policy, you have the right to complain. We will work through this process with you and give guidance on how you can access a free and impartial disputes resolution scheme.

DISCLAIMER: This document has been prepared as a general guide only and is not intended to be specific or tailored advice.
If any content raises a query or concern, please speak with your Broker.