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In New Zealand, if you estimate the value of your belongings too low when taking out contents insurance, you could end up receiving less money than you need to replace everything after a fire, burglary, flood or other insured event. The consequences depend on your policy and how your insurer calculates your cover.

What can happen?

• You may not have enough cover to replace everything. If your belongings would cost $80,000 to replace but you've insured them for only $40,000, your maximum cover may be insufficient to replace all your possessions.
• You might receive less than you expect for a claim. Depending on your policy, the insurer may pay the assessed loss up to your sum insured, subject to policy limits, excesses and exclusions.
• Some valuable items may exceed individual limits. Jewellery, watches, artwork, bicycles and other specified categories may have separate limits, even if your overall contents sum insured is adequate.
• You could face financial stress after a major loss. You may need to pay the difference yourself to replace furniture, appliances, clothing, electronics and other essentials.

One important distinction: being underinsured does not automatically mean your insurer will reduce every claim proportionally. That depends on the wording of your particular policy.

A simple example

Suppose you choose a contents sum insured of $30,000, but replacing all your belongings would cost $60,000.

Your estimated cover

$30,000

Actual replacement cost

$60,000

Potential shortfall: $30,000

If all your contents were destroyed in one covered event, your sum insured could leave you with a substantial shortfall. The exact payout depends on your policy terms.

This is why insurers such as NZI and ASB recommend calculating what it would cost to replace your belongings, rather than simply guessing their value. Contents CalculatorContents insurance calculator - Find your sum insured

What should you do if you've already estimated too low?

1. Increase your sum insured. Contact your insurer or update your policy online. You generally don't have to wait until renewal, although any change is subject to the insurer's terms.
2. Use a contents calculator. Go room by room and estimate the cost of buying replacement furniture, clothes, kitchenware, electronics, bedding and other household items.
3. Check special-item limits. Make sure expensive jewellery, watches, bicycles, cameras or collectibles are covered for the right amount, and specify items if required.
4. Review your policy wording. Check whether items are covered for replacement cost or present value, and whether any category limits apply. Contents insurance calculator - Find your sum insuredHouse & Contents Insurance: Sum Insured ExplainedInsurance

You can start with the NZI contents calculator or the ASB contents calculator.

Will your insurer penalise you for getting the estimate wrong?

Not necessarily. Accidentally underestimating your belongings doesn't automatically mean your policy is invalid or that a claim will be rejected. The key issue is usually whether your cover is sufficient and whether you've met the policy's conditions. Deliberately giving false information is a different matter.

My advice: If you're arranging insurance now and aren't sure of the total, it's worth spending a little time checking the replacement cost before settling on a figure. A slightly lower premium may not be worth the risk of a large shortfall.

If you tell me whether you're renting or own your home, I can explain what to include in your contents estimate and which belongings people commonly forget.