25 insurance traps catching people out
Insurance policies don't make for riveting reading, but they are full of traps for the unwary.
While insurers, banks and fund managers are experts with big lawyers to help them limit liabilities, the man or woman in the street is expected to digest many contracts relying largely on their own savvy and skills.
There are traps that can lead to loss with the likes of credit cards, mortgages, and financial guarantees, but nowhere are they more numerous than in car, home, and contents insurance.
Not being stimulating reading, it's tempting to just assume your policies will provide cover if something awful happens.
But that could mean discovering your error after a claim when it is just too late.
So here is a list of 25 traps that can lead to claims being declined, contracts ripped up, or expectations disappointed.
1. Initial "non-disclosure": This is not telling the insurer something "material" when taking out insurance. You need to answer every question asked honestly, and accurately. This includes telling it all about things like criminal, driving and insurance history.
2. Speeding tickets: You have to tell the insurer if anything material changes during the course of your policy. This includes every speeding ticket you get and any criminal convictions of anybody covered by the policy.
3. Modifying cars: Cars are covered to factory specifications. Add things like expensive stereos that make them more nickable, and you need to tell your insurer.
4. Modifying homes: If any part of the home is being constructed, de-constructed or undergoing alterations, it is unlikely to be covered under your house insurance. AMP General warns special "site cover" is needed when renovations and extensions are underway.
5. No right to silence: Commit a crime, and you can stay tight-lipped to Police. There's no right to silence under insurance contracts. ANZ's house policy says: "You must provide any information and assistance we reasonably request in considering, negotiating, defending, undergoing or settling any claim against your policy." That means telling the truth, the whole truth and nothing but the truth to it and its investigators, no matter how damning.
6. Taking over your civil case: Crash your car into a Porsche, and the Porsche owner's insurer may decide to sue you. Costs will be covered under your car insurance, but only if you allow your insurer to run your case, including giving it the power to settle, even if you want to fight on.
7. Admitting guilt: rear-end someone, and it may be tempting to apologise. Take care. You must not admit guilt, or any legal liability without your insurer's permission.
8. Variable excesses: You may have a $300 excess on your car insurance, but if you lend the car to a driver under the age of 25, it can jump as high as $1200. Similarly, a contents policy may have an excess of $250. But if you take in a boarder or flatmate it can suddenly jump to $500.
9. Sum insured: The awfulness of a house fire could get worse, if you discover that you have set the sum insured too low. If you set it too low then you will have to rebuild smaller, or pay the difference.
10. What's not covered: House insurance policies generally won't include driveways, paths, patios, bridges, culverts, wharfs and "special features", so check what they may be.
11. Right to cancel: Insurers like AA Insurance purport to have the right to cancel a policy by simply notifying a policyholder. They don't need a reason.
12. Paying claims to someone else: When you sign up to insurance, you must specify if someone like a mortgage-lender or finance company has a financial interest in the property being insured. If you do specify one, the insurer may settle the claim with them.
14. Joint compliance: On a mortgage, a couple are jointly, and severally liable. Insurance policies are similar. If you co-own a home, their non-disclosure could result in the policy being avoided and your insurability damaged.
15. Reasonable care: Policies require you to take reasonable care. Leave your car unlocked, or with a spare key behind the sun visor, then you could find a claim gets turned down. It also means ensuring vehicles are roadworthy. Expect to have your car tyre treads checked after an accident.
16. Off road: Taking your vehicle "off-road" means entering an uninsured zone in some policies. As the AA Insurance policy says off-road means "unsealed surfaces, rough terrain, a beach, sand dunes, a river, a riverbed or for hill climbing regardless of whether or not your vehicle is designed for off-road use." Some "off-road" places like boat ramps, car parks, or a access roads are okay.
17. Their choice: Many policies let insurers choose how to pay a claim. They choose to repair or rebuild a home, or pay the homeowner cash, or they choose who repairs a car. If they agree to let you choose, they will only pay what the repair or rebuild would have cost them.
18. Under-insurance: After a fire, some quickly "max out" on their contents cover. Insurers have helpful calculators to help you work out what your stuff is worth.
19. Specified items: You must tell contents insurers about expensive items of jewellery, equipment and collections. Fail to do so and an insurer may only have to pay out a fraction of their worth if they are stolen or destroyed by fire.
20. Replacement value: Many items under contents policies are covered only for "replacement" value, which is the second-hand value. That can mean burglars make off with things like clothes and electronics and you get a far smaller cheque than you expect.
21. Temporary accommodation: If your house is rendered unliveable by a fire, you may need to rent another place. Insurers set limits, usually around $30,000, and allow claims of no longer than 12 months. Houses can take longer to repair and $30,000 may not be enough to rent in a suburb you like.
22. No duty to alert: At claims time, you need to read your policy carefully, and be proactive about finding out what you are covered for. Insurers don't have to tell you.
23. Vermin: Invasion of your home by vermin can lead to losses, but unless they are caused by wild possums, contents policies won't cover it.
24. Gradual damage: Damage that happens slowly, including by water leaking from pipes, is covered, but the limits are low, generally about $3000.
25. Long holidays: If you leave your home empty for 60 days or more, you need to have permission from your insurer before you go, or your house is effectively uninsured.
Written by Rob Stock. First appeared on Stuff.co.nz.
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