What's Changed?
In New Zealand, house insurance has been typically based on 'full replacement' cover, with no maximum dollar limit. However, now most insurance companies will offer cover based on the cost of rebuilding your home up to a maximum limit. This maximum limit is called your 'sum insured'. The recent change towards 'sum insured' home insurance policies brings New Zealand closer to the international norm.
Why has it changed?
The changes are the result of natural disasters around the world, including New Zealand's Canterbury earthquakes. Reinsurers (companies that provide insurance companies with insurance) will now generally only provide reinsurance cover here if they know what total costs they could face. Sum insured cover gives them this figure and means that insurance can continue to provide natural disaster cover and remain as cost effective as possible for customers.
Traditional "full replacement"
Traditionally, home insurance in New Zealand was based on 'full replacement'. Insurance coverage was pegged to the area of your house; by its square metres. If your house was totally destroyed, it would be rebuilt to the square meters that you declared to the insurer, regardless of the building costs.
New "sum insured"
The sum insured is the amount you specify to your insurance company as the cost to rebuild your home in case of a total loss. It's up to you to provide this figure. Most of us would have received something from our banks and/or insurance companies explaining these changes by now. Unless and until they hear from you, a generic formula will usually be applied as default to determine your sum insured amount.
Next step: Go to "What do you need to do?."