Why home insurance under-insurance still catches too many NZ homeowners out

In New Zealand, under-insurance is still a common problem. Research has found a large share of homes are under-insured, often by a significant margin. Making sure your sum insured reflects today's rebuild costs is one of the most important checks you can do.

Most homes are not insured for what it would actually cost to rebuild

In New Zealand, under-insurance is still a common problem. Industry research has found that a large share of homes are under-insured, often by a significant margin, leaving a national shortfall measured in the tens of billions of dollars. That gap matters even more now, given the sharp rise in building and rebuild costs in recent years.

For homeowners, the main issue is simple. A house does not just need to be insured for what you think it is worth on paper, or what it might sell for in the market. It needs to be insured for what it would cost to put it back the way it was, or rebuild it if the worst happens.

That is where many people go wrong. Build costs, labour, materials, demolition, and professional fees can push the real replacement cost well beyond what owners expect. If your sum insured is too low, you may still get a payout, but it may not be enough to fully restore your home.

Why replacement value matters more than market value

A home’s market value and its rebuild cost are not the same thing. In Christchurch, for example, land value can make up a large part of a property’s sale price, but land is not what gets damaged in a fire, earthquake, or flood. Insurance is about the structure, the fittings, and the cost of putting it back together.

That is why setting the Sum Insured properly matters. The sum insured is the amount your insurer uses as the cap for your home cover, unless your policy has extra features that change that outcome. If the figure is too low, you can be left filling the gap yourself.

Many homeowners underestimate the extras that sit around a rebuild. These can include architect or engineer fees, council-related costs, demolition, site clearing, and the practical costs of getting a property ready to rebuild. Those are not small add-ons. They are part of the real cost of getting back to normal.

Smiths Insurance and KiwiSaver says it has access to a third-party rebuild-cost tool that calculates the true value of what it will cost to rebuild your home. The calculation is based on typical rebuild costs for homes with similar materials and features. That gives homeowners a more realistic starting point than guesswork or an old insurance figure that has not moved in years.

What Smiths can do that most homeowners cannot do alone

Most people can compare policy prices online. What they usually cannot do on their own is get an advice-led view of whether their house is actually insured correctly.

Smiths can use a third-party rebuild-cost tool to help work out the true rebuild value of your home. That matters because the tool is not just a rough estimate based on a street view or a basic property value. It is based on typical rebuild costs for homes with similar materials and features. In practice, that means the result is designed to be used as a serious guide for your Sum Insured.

You can then use the cost it gives you to assist in setting the Sum Insured on your house insurance. That step sounds simple, but it is one of the most important parts of home insurance advice. A policy can look fine until a claim happens. Then the real question is whether the amount insured matches the real rebuild cost.

Smiths can also attach this report to your policy for absolute peace of mind. That gives you a paper trail showing how the figure was reached, which is useful if your home changes, your insurer asks questions, or you simply want a clear record of why your cover level was set the way it was.

How SumExtra can help when the numbers are tight

If your home is insured for its replacement value, you could also be eligible for Smiths’ SumExtra benefit at no extra cost.

That feature matters because even a carefully worked-out sum insured can still fall short if building costs rise or if the damage is more severe than expected. SumExtra is designed to provide a margin of protection in that situation.

There are two parts to the benefit:

• Up to 10 percent more cover for natural disasters. If your home is damaged or destroyed in a natural disaster, such as an earthquake or tsunami, and the Sum Insured amount is not enough to pay for repairs or a rebuild, SumExtra kicks in with up to 10 percent extra.
• Full repair or replacement cover. If your home gets damaged or destroyed by any insured event other than a natural disaster, with SumExtra you are covered for the costs to repair or replace your home, even if the cost is more than your Sum Insured amount.

That is an important distinction. New Zealand homeowners know that natural disasters are part of the insurance conversation here, especially after earthquakes, storms, slips, and flooding have stayed in the public mind. But everyday insured events can also cause major damage, and a policy feature like SumExtra can help if the repair bill lands above the number you first chose.

What the rebuild figure should include

A proper rebuild estimate is not just a number pulled out of the air. The final figure from Smiths’ calculation includes:

• Rebuild costs
• Professional fees
• Demolition costs

Those items are central to a realistic insurance figure. Rebuild costs are the obvious part, but professional fees and demolition can be significant and are easy to overlook. If they are left out, the sum insured may be too low from the start.

This is one reason old insurance figures should not be left untouched year after year. Construction costs move, and homes change too. A property that was insured correctly three years ago may no longer be covered at the right level today, especially after inflation and materials price rises.

How often to review your cover

Smiths’ guidance is clear. Make sure you update this figure at least once every three years.

That timing makes sense because a home is not a static asset. You may have added a deck, upgraded a kitchen, improved a bathroom, changed cladding, or made repairs after weather damage. Even if the house itself has not changed, the cost to rebuild it may have.

Regular reviews are especially important in New Zealand, where rebuild costs can shift quickly. A small increase in labour, timber, or trades costs can widen the gap between an old sum insured and the amount actually needed after a claim. The point of a review is not to make insurance more complicated. It is to stop a manageable problem becoming a major shortfall when you need the policy most.

A practical way to check whether your home is set up properly

The simplest way to approach domestic insurance is to treat the sum insured as something that should be checked, not assumed. Start with a rebuild estimate based on your actual home, not a rough guess. Then compare that figure with your current policy. If the numbers are close, you are in a better position. If they are far apart, you may be carrying more risk than you realise.

Smiths’ role is to help you interpret the rebuild estimate and use it properly. That can save time, remove uncertainty, and give you a policy that is more closely aligned with the real cost of putting your home back together after a loss. It can also help you understand whether SumExtra applies and whether your current cover is still appropriate.

A house is often a family’s biggest asset, but more importantly, it is where people live their daily lives. Insurance should reflect that reality, not an old figure that has been sitting unchanged for years.

What to do next: if you have not reviewed your home sum insured recently, ask Smiths for a no-obligation review. They can help check the rebuild figure, update your policy if needed, and make sure the cover still matches the real cost of rebuilding your home.