Surprises lurking in your insurance policies

OPINION: Here's a riddle for you: What costs a fortune to buy, but you hope to never use?
The answer is insurance.

But because claiming on insurance is a relative rarity in most peoples lives, a first claim on any kind of insurance can result in some surprises, not all of them pleasant.

Last month I spoke with Auckland woman Sheneshni Naicker who claimed on an IAG policy she had bought from ASB after both her cars were stolen.

* Six months after woman's two cars were stolen, insurer IAG has not paid her claim
* Earthquake claim denied because of 30-year-old building 'defect'
* Many people don't know what their car insurance covers

Naicker learned a thing or two, and her experience is one we can all learn from.

Criminal checks: I would be furious if an insurer wanted to do a criminal check on me. But thats what the insurer did on her. People are often surprised to learn that the insurance contracts they signed obligate them to co-operate with insurers investigations. This includes providing material they ask for like bank statements, and health records, and agreeing to things like police checks.

David White/Stuff
Sheleshni Naickers experience gives an insight into some of the powers insurers reserve in their contracts, and some of the limitations of the laws governing them.

Carry on paying the premium: The second thing that surprised her was that she had to carry on paying the premium until her claim was finalised, even though she had no car to drive.

No time limits: The Fair Insurance Code does obligate insurers to act in a timely manner, but there are no hard legal time limits on handling claims. Naickers claim still hadnt been completed by the start of March, despite the thefts happening in September.

Writing off repairable cars: Naickers beloved Toyota Wish was treated poorly by the thief, but not damaged so much as to make it a write-off. But with repair costs rising, it now doesnt take much for the repair costs to rise above a car's value. Sometimes repaired write-offs end up for sale again.

Gradual damage: Insurers set low limits on damage to homes which happen gradually. Someone may find a hidden leak months after it happened, and so find they are only covered for part of the cost of repair, minus their excess.

Multiple excesses: I recall doing a story about a landlord who claimed for damage caused by a tenant. The insurer saw each of the instances of damage as likely to have been a separate event, resulting in it deducting 10 different excesses.

They were underinsured: These days house insurance is bought with the buyer naming the sum insured which is the maximum the insurer has to pay, if their house is destroyed. There is a widespread fear many are underinsured.

Their right to sue people: Your insurer might sue someone in your name. When you sign an insurance contract, the insurer reserves the right to step into your shoes to pursue another person for the costs of paying your claim, such as an uninsured driver who hit your car.

What your stuff is really worth: People who are burgled are sometimes surprised to find their insurance does not actually replace everything that is lost. Some items devalue very quickly, and people get paid only a small amount of what they may have thought was their value.

The obligation to take reasonable care: Insurers require their policyholders to take reasonable care to avoid incurring claims. There are other duties, such as keeping homes and cars in decent repair, in policies. It can be a shock to find out that your insurer feels you did not take reasonable care, and declines your claim.

Many people only read their policies when they need to make a claim. This is a mistake, as is not taking a firm stance when your insurer starts to behave in ways you think are unreasonable.


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