Types of insurance - Different kinds of insurance

Life is full of risks of things that could happen – the house burning down, the car being stolen, illness preventing us from earning a living. The good news is that whatever the risk, chances are there’s an insurance policy available to reduce the financial loss we would take should the worst occur.

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Insuring what we own

Our home, household contents or other belongings are expensive to buy. Many people can’t afford to repair or replace these things if they are damaged or destroyed. By paying a fee called a ‘premium’ to an insurance company we get a promise in return that the company will pay the costs related to incidents covered by the policy. That can include damage to our car, house, or the costs of repairing someone else’s car or other property that we have damaged accidentally. It’s important to remember that we have a duty to tell the truth when applying for insurance. If we leave important information out when applying for insurance our future claims may not be paid.

Insuring our house and contents

House insurance

Insuring our home protects it against the risk of fire or other damage. Most home insurance provides cover only up to the ‘sum insured’ – a capped amount that is the limit of what we can claim. We need to decide what our sum insured is – how much it would take to rebuild our home in the event of a disaster. Guide to home insurance House insurance is usually required by a lender when we have a mortgage. Lenders Mortgage Insurance covers the bank if we can’t make the payments on our loan.
Contents insurance covers damage and loss of our belongings. It also provides some ‘third party’ cover if we damage someone else’s belongings in the house we are living in. So it’s a good idea when flatting or renting.
When we buy house and contents insurance, we also get EQC insurance for damage to our home or belongings caused by a natural disaster. This is paid for by a compulsory levy that is added to the premium. Find out more on the EQC website. If we don’t have home or contents insurance, we won’t be covered by EQC. A levy to fund the fire service is also added to house and contents (and motor vehicle) insurance policies. The Insurance Council of New Zealand has more on house and contents insurance.

Insuring our car

A car may be one of the most expensive items we own. If it is stolen or damaged in an accident it can be very expensive to repair or replace. Motor vehicle insurance will pay to repair or replace our car if these events occur. ‘Comprehensive’ motor vehicle insurance is the most common and it covers us for loss, theft or damage to our vehicle. It also covers us for accidental damage to the other car or property we damage. It can be tempting to save money by not insuring a cheap car. This can be a mistake – if we cause an accident, we could be responsible for paying for the other car’s damage. Cheaper options are ‘third party’ and ‘third party, fire and theft’ cover. Third party insurance covers for damage to another person’s vehicle or property, but not ours. Extending third party insurance to fire and theft covers the risk of our car being destroyed by fire or stolen, too. The cost of insurance will vary depending on our age, claims history, the level of excess we are prepared to take, and the make and type of vehicle. The Insurance Council of New Zealand has more information on car insurance.

Insuring our health

Health is a precious thing. If you fall sick and can’t work you still need money to pay the bills. Insurance can help you make ends meet if you are unable to earn your normal income. There are many types of health-related policies, such as: Medical insurance, which covers private hospital and other medical bills Trauma (also called critical illness), which provides a lump sum if you suffer from certain illnesses or injuries such as cancer, heart disease or paralysis Income protection insurance, which pays a percentage of your income on an ongoing basis if you suffer from named illnesses Disability insurance, which pays out a lump sum for permanent disablement through sickness or accident Mortgage protection insurance, which covers your mortgage if you can’t work

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Insuring our lives

Life insurance provides a lump sum of money on death. In some cases a portion or the entire ‘sum insured’ is paid out early on the diagnosis of a terminal illness. There are different types of life insurance cover. The most common one today is term life insurance, which provides cover for a fixed number of years such as the length of a mortgage.
All policies that cover health or life have exclusions in the fine print. You may only be covered for certain named illnesses or injuries rather than 'blanket cover'. It’s also very common for policies to have exclusions for ‘pre-existing conditions’, which means any illness or injuries you've experienced symptoms for before the cover started. These types of insurance can be confusing. A broker can explain these insurances and help you lodge claims.

Insuring our travels

It’s a good idea to buy travel insurance for an overseas holiday. Travel insurance policies cover belongings against loss or theft, extra costs if flights are cancelled, and medical treatment if you have an accident or become ill. Medical bills can be very high in other countries, and it’s a big financial risk to go on holiday without travel insurance. You can also buy domestic travel insurance to cover holidays here in New Zealand. This covers you if flights are delayed and for certain costs that can’t be recovered from ACC or your home contents insurer. Some policies have cover for rental car excesses. Travel insurance policies usually have exclusions for pre-existing conditions and unattended baggage. There are many conditions and exclusions in travel insurance policies, so it helps to read the policy wording and understand what exactly you’re covered for.