Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Home and Contents Insurance: Choice of Cover
Understand what type of cover your insurance gives you.
Most insurers in Australia and New Zealand provide a choice of cover for buildings and contents insurances:
- defined events, or
- accidental damage.
The main difference between these options is the way they approach the concept of insured events: one works by stating what it does cover whereas the other operates by stating what it does not cover.
There are several terms used to describe these types of policy, mainly: defined events, named perils, listed perils and extraneous perils. Each of these terms refers to a policy that provides cover only for the specific events listed in the insurance contract. Such a list of covered events will typically include:
- fire, explosion
- earthquake (in NZ, earthquake may be offered only as top-up cover or excess beyond that for which the government’s Earthquake Commission is liable—see below)
- burglary or housebreaking or theft (excluding by a tenant or from any part of the building shared with another person who is not insured under the policy)
- theft of money or negotiable items by force used to enter the buildings (theft by a tenant is excluded)
- malicious damage or vandalism (except by a tenant)
- escape of liquid from such things as fixed pipes, gutters, fixed tank or a drain, washing machine or dishwasher, aquarium or waterbed
- burning out of electric motors less than 10 years old
- accidental breakage of fixed glass, hand basins, baths and toilet bowls or cisterns
- riot and civil commotion
- impact by aircraft or aerial device, television antenna or dish, vehicles or animals
- storm, rainwater or runoff (excluding flood in Australia—see case study below)
- in New Zealand, damage caused by possums entering the home.
Whereas defined events policies cover only the specific events listed in the policy, accidental damage policies conversely cover all accidental loss or damage to buildings or contents, other than those events specifically excluded by the contract. Therefore, cover provided by accidental damage policies is generally much wider than for defined events policies.
A list of exclusions in an accidental damage policy will typically include loss or damage due to:
- landslide other than the cover listed under the defined events policy
- earth movement, shrinkage or expansion
- subsidence and erosion
- water damage because of structural defect, faulty design or faulty workmanship
- flood, tidal wave or tsunami (see case study below, noting that storm and flood are not standard exclusions in NZ)
- rust, corrosion, rot, mildew, gradual deterioration or removal of support
- depreciation, wear or tear or neglect
- defective workmanship
- defect in design
- rats, mice or insects
- tree roots
- gradual escape of liquid
- incorrect sitting of buildings
- breakage of mirrors, glassware, crystal, crockery or china while they are being used, cleaned or carried by hand
- water entering your buildings through an opening made for any building, renovation or repair work
- war, invasion, act of foreign enemy, civil war, rebellion, revolution, insurrection, military or usurped power, destruction or acquisition by government or local authorities
- nuclear weapons, ionising radiations, or contamination by radioactivity from nuclear fuel.
This is not an exhaustive list, as each insurer will vary in the exclusions they apply.
Exclusions and the Earthquake Commission - New Zealand
In New Zealand, loss or damage covered by the Earthquake Commission is necessarily excluded, as is loss or damage caused by the Injury Prevention, Rehabilitation and Compensation Act 2001 and subsequent amendments or Acts. Wordings may differ amongst insurers.
As loss or damage covered by the Earthquake Commission Act 1993 is excluded, it is essential that insurers of personal line products operating in that country are fully aware of what is and what is not covered by this Act (please see section four of this Overview).