Area Replacement vs Sum Insured - Why Your House Insurance May Leave You Exposed
Discover why 90% of NZ homeowners risk massive shortfalls with sum insured policies. Learn how area replacement vs sum insured works, see real Christchurch and Cyclone Gabrielle examples, and find out if you're carrying a hidden $200,000+ liability - our guide is essential reading for any homeowner.
Updated 15 September 2025
Summary
This guide explains everything you need to know about these two fundamentally different approaches to house insurance. We explain why one leaves you carrying massive financial risk while the other means you're covered, no matter what happens to building costs. We cover:
Summary
- Two houses on your street are destroyed in an earthquake, flood, or cyclone. One owner walks away fully covered. The other discovers they need to find $250,000 to rebuild. The same disaster, the same damage, but completely different outcomes.
- The difference? How their insurance was structured.
- This actually happened after the Christchurch earthquakes. It's happening right now to homeowners hit by floods and cyclones. And most New Zealanders are unaware that they're at risk.
- Here's something the insurance industry doesn't advertise - you might think you've got "full replacement" cover, but if you've set a sum insured (like 90%+ of homeowners), you're essentially taking the view that building costs won't spike before you need to make a claim. And spike they can - sometimes by 40% or more.
- Many homeowners don't realise that you have a choice in how your house is insured, not just who insures it. That choice - between sum insured and area replacement - could be worth hundreds of thousands of dollars when you need it most.
This guide explains everything you need to know about these two fundamentally different approaches to house insurance. We explain why one leaves you carrying massive financial risk while the other means you're covered, no matter what happens to building costs. We cover:
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MoneyHub Founder Christopher Walsh shares his views on area replacement, sum insured and general house insurance risks
"When I started MoneyHub, the mission was simple - help New Zealanders find and compare the best financial products, not just the cheapest ones. The difference between "best" and "cheapest" has never been clearer than with house insurance. What other countries have learned In Australia, the 2020 bushfires highlighted the same issue we're seeing here - thousands discovered their sum insured left them catastrophically underinsured. Australians have inadequate protection, with the Australian Securities and Investments Commission stating that up to 80% of homeowners are underinsured. The UK has seen similar outcomes after flooding events, and its Financial Ombudsman continues to receive complaints from homeowners who are unaware that they were underinsured. Both countries are now pushing insurers to offer clearer alternatives to sum insured. We're behind the curve in New Zealand, with very few insurers offering area replacement. Why weather changes everything The insurance model built for the stable weather patterns of the 1980s no longer works today, nor will it work next year. We're seeing "once in a 100 years" events every few years. Each event creates the same pattern: massive demand for builders, material shortages, price spikes of 30-40%, and thousands of underinsured homeowners facing financial ruin. The traditional sum insured model assumes you can predict future building costs. That assumption is becoming increasingly dangerous. MoneyHub's position
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Christopher Walsh
MoneyHub Founder |
Important: Understand the Hidden Risk Most Homeowners Don't Know They're Carrying
With sum insured, you're betting rebuild costs won't spike before you need to claim. History shows that this bet fails repeatedly when there is a natural disaster - Christchurch homeowners faced 40-70% cost spikes, leaving many with shortfalls of $200,000 or more, and the same happened after Gabrielle.
How Area Replacement Insurance Cover Eliminates This Risk:
Who Benefits Most from Area Replacement House Insurance Policies:
The MAS Difference: As a not-for-profit owned by members, MAS doesn't profit from claim denials or coverage gaps. They exist to pay claims, not protect shareholder profits. That's why they're the only insurer offering true area replacement.
Check Your Real Coverage Now: See how MAS area replacement protects you when sum insured cover is insufficient.
Important: The cheapest insurance is expensive if it leaves you $200,000 short. The best insurance - the kind that actually works - costs slightly more but delivers when disaster strikes.
With sum insured, you're betting rebuild costs won't spike before you need to claim. History shows that this bet fails repeatedly when there is a natural disaster - Christchurch homeowners faced 40-70% cost spikes, leaving many with shortfalls of $200,000 or more, and the same happened after Gabrielle.
How Area Replacement Insurance Cover Eliminates This Risk:
- No sum insured cap - Coverage based on your home's actual square meters, not a dollar guess - you can get an estimate of the cost from MAS here.
- Automatic inflation protection - When building costs spike 40% after disasters, you're covered
- No annual revaluations needed - MAS, as the primary provider of area replacement, tracks rebuild costs, so you don't have to
- Proven disaster performance - MAS customers rebuilt fully after Christchurch, floods, and Gabrielle
Who Benefits Most from Area Replacement House Insurance Policies:
- Character home owners (impossible to value accurately)
- Anyone in disaster-prone areas
- Homeowners who want genuine "set and forget" insurance
- Those who understand that paying 10-20% more eliminates 100% of shortfall risk
The MAS Difference: As a not-for-profit owned by members, MAS doesn't profit from claim denials or coverage gaps. They exist to pay claims, not protect shareholder profits. That's why they're the only insurer offering true area replacement.
Check Your Real Coverage Now: See how MAS area replacement protects you when sum insured cover is insufficient.
Important: The cheapest insurance is expensive if it leaves you $200,000 short. The best insurance - the kind that actually works - costs slightly more but delivers when disaster strikes.
What is Sum Insured?
Sum insured is how most New Zealanders have their homes covered - you pick a dollar amount (say $500,000) and that's your maximum payout if disaster strikes.
How it works:
What is the risk?
There is an unknown limitation with sum insured - the $500,000 you carefully calculated today might only buy you $350,000 worth of house after a major disaster. Building costs don't just creep up with inflation - they can spike dramatically when everyone needs builders at once. These are the laws of supply and demand, and we saw it in Christchurch after the earthquakes.
If your home insurance policy uses sum insured, you have ongoing responsibilities:
The risk is that you haven't estimated correctly - we believe many homeowners set their sum insured when they buy, maybe update it once or twice, then forget about it. That's exactly how you end up underinsured.
How it works:
- You nominate a fixed rebuild value using online calculators, valuations, or estimates. Our home insurance calculator is one such calculator
- Your premium is based on this amount - the higher your sum insured, the more you'll pay every year to your insurer
- In a total loss, your payout is capped at this figure
- You're responsible for keeping the sum insured updated as building costs change
What is the risk?
There is an unknown limitation with sum insured - the $500,000 you carefully calculated today might only buy you $350,000 worth of house after a major disaster. Building costs don't just creep up with inflation - they can spike dramatically when everyone needs builders at once. These are the laws of supply and demand, and we saw it in Christchurch after the earthquakes.
If your home insurance policy uses sum insured, you have ongoing responsibilities:
- Annual reviews of building costs in your area
- Professional revaluations every few years
- Adjusting for any renovations or improvements
- Monitoring construction industry inflation
The risk is that you haven't estimated correctly - we believe many homeowners set their sum insured when they buy, maybe update it once or twice, then forget about it. That's exactly how you end up underinsured.
What is Area Replacement?
Area replacement takes a completely different approach - instead of you guessing what your house might cost to rebuild, with MAS Full Area Replacement, if your home is damaged or destroyed by a covered event, they’ll cover the full, reasonable cost to repair or rebuild it to the same size and standard as it was before.
How it works:
How does this work in practice?
Let's take an example using the MAS House Insurance policy, which defines Area Replacement:
"Where your house is damaged by a covered event, e.g. a natural disaster, we'll pay the reasonable cost for a full repair. And if your property is a total loss, we'll pay the reasonable costs to rebuild your house in its entirety".
What "Reasonable Cost" Means - MAS will pay:
MAS won't pay for:
The key difference: With area replacement, you're not guessing at a rebuild cost, unlike with sum insured. Instead, your coverage is not capped so long as the total area in square metres remains the same.
Here's how it works:
The critical point: When building costs increase - whether from inflation or post-disaster demand - your coverage increases too. With area replacement, so long as the size of your house is the same, your insurer carries the rebuild cost inflation risk - not you. With sum insured, you'd be stuck with your original $500,000 guess and would have to find the extra $200,000 yourself.
How it works:
- The insurer estimates the cost to rebuild the property using industry calculators
- The SQM size that is confirmed at the time the policy is first implemented is the basis of settlement in a claim. At MAS, the SQM size includes all floors and outbuildings
- This figure is used to set the estimate for the insurer and is subject to inflationary changes at renewal
How does this work in practice?
Let's take an example using the MAS House Insurance policy, which defines Area Replacement:
"Where your house is damaged by a covered event, e.g. a natural disaster, we'll pay the reasonable cost for a full repair. And if your property is a total loss, we'll pay the reasonable costs to rebuild your house in its entirety".
What "Reasonable Cost" Means - MAS will pay:
- Current market rates for materials and labour in your area
- Standard building costs for a home of similar quality and specifications
- Professional builder quotes (not DIY costs)
- Compliance with current building codes (even if your old house didn't meet them, but it was up to the building codes when it was built)
MAS won't pay for:
- Upgrades beyond like-for-like replacement
- Luxury finishes if your original home had standard finishes
- Betterments unless required by building code
- Unreasonable quotes (e.g., choosing the most expensive builder when others are available)
The key difference: With area replacement, you're not guessing at a rebuild cost, unlike with sum insured. Instead, your coverage is not capped so long as the total area in square metres remains the same.
Here's how it works:
- Your house size: 200sqm (this stays constant)
- Today's rebuild cost: $2,500/sqm = $500,000 coverage
- After a disaster, when costs spike: $3,500/sqm = $700,000 coverage
- What you receive: The actual rebuild cost
The critical point: When building costs increase - whether from inflation or post-disaster demand - your coverage increases too. With area replacement, so long as the size of your house is the same, your insurer carries the rebuild cost inflation risk - not you. With sum insured, you'd be stuck with your original $500,000 guess and would have to find the extra $200,000 yourself.
What is "reasonable cost"? Will it be sufficient?
Reasonable costs means covering the fair market rate to repair or rebuild your home to its original standard that reflects the quality and current industry pricing. MAS, in our discussions with them, has stated that reasonable costs includes matching original materials, and prioritising member satisfaction over cost-cutting.
Area Replacement vs Sum Insured: What Every Homeowner Needs to Know
Feature |
Area Replacement |
Sum Insured |
How the rebuild amount is calculated |
Based on the SQM size of the home, and uses calculations based on the estimated cost to rebuild |
You nominate a fixed dollar amount (e.g. $600,000) to insure the home for. This is usually based on a rebuild calculator or valuation |
Risk of underinsurance |
Low – Your cover scales with market rebuild costs so long as the total area of your house in square metres has not increased |
High – If rebuild costs rise and your sum isn’t updated, you may fall short of actual rebuild costs |
Adjustment for inflation and building cost changes |
Is uncapped and therefore accounts for labour, material and construction inflation |
Manually updated – you must regularly revalue your home and increase the sum insured yourself |
Who calculates the amount? |
The insurer calculates and maintains the rebuild cost based on their own data, industry calculators and your home’s floor area |
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Ongoing maintenance required? |
No – once set up, the insurer handles future rebuild inflation changes. Checking the SQM remains correct and accurate is key |
Yes – you must revisit your sum insured regularly (often annually) to avoid falling behind - our house insurance calculator has more details |
Claims certainty |
Very high – rebuild costs will be covered in full if the size of your house is accurate, remains the same (within policy terms) |
Uncertain – payout is capped at the insured amount, even if rebuilding costs more |
Peace of mind during disasters |
Very high – no need to stress about rebuild cost spikes post-flood, quake or cyclone |
Often low – major events can expose large gaps between the insured amount and real rebuild cost |
Handling of unique and character homes |
Ideal – complex rebuilds like villas or lifestyle properties are automatically covered based on sqm |
Risky – you must guess at the cost to replicate unique materials or designs - our house insurance calculator has more details |
Transparency and simplicity |
Simple and easy to understand once set – based on sqm and building type |
Requires effort to understand, monitor, and regularly update. Many homeowners are unaware they’re underinsured |
Who is best suited for it? |
Homeowners who want complete peace of mind Owners of older/character homes Rural/lifestyle block property owners People who value fast claims and long-term certainty |
Budget-conscious homeowners Those in low-risk rebuild zones People who prefer self-managing insurance costs Those willing to regularly monitor construction inflation |
Biggest downside |
Premiums are often higher as you’re paying for full protection |
Lower premiums, but you carry the risk of a shortfall when you need your insurance most |
Important: Understand the Hidden Risk Most Homeowners Don't Know They're Carrying
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- If you have sum insured, you're betting building costs won't spike 40-70% before you claim - a bet that failed thousands after Christchurch and Cyclone Gabrielle.
- MAS area replacement eliminates this risk entirely with coverage based on square meters, not dollar guesses. While sum insured leaves you exposed to $200,000+ shortfalls, MAS covers the actual rebuild cost no matter how high prices surge.
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- MAS is the only mainstream insurer offering true area replacement. No caps, no shortfalls, no annual revaluations. Just complete protection when disaster strikes. The 10-20% higher premium eliminates 100% of your rebuild risk. Check Your Real Coverage Now
- The MAS Difference: As a not-for-profit owned by members, MAS doesn't profit from claim denials or coverage gaps. They exist to pay claims, not protect shareholder profits. That's why they're the only insurer offering true area replacement.
- Important: The cheapest insurance is expensive if it leaves you $200,000 short. The best insurance - the kind that actually works - costs slightly more but delivers when disaster strikes.
Real-World Examples and Why Understanding the Difference Matters
Christchurch Earthquakes
Cyclone Gabrielle/Auckland Anniversary Floods
Character Homes
Regional Variations
- Building costs jumped 40% as demand overwhelmed supply, as outlined in this 2016 NZ Herald article.
- Homeowners with a $400,000 sum insured faced rebuild costs of over $550,000, while those with area replacement were fully covered.
Cyclone Gabrielle/Auckland Anniversary Floods
- Material shortages and contractor demand drove up costs in affected areas, as outlined in the March 2023 government summary.
- Homeowners who last reviewed their coverage in 2020 (or earlier) found themselves significantly short of the sum insured.
- This 2024 Stuff.co.nz article outlined that a homeowner whose house was destroyed by Cyclone Gabrielle was only paid out half the cost of rebuilding his property, and came with a warning that others may be similarly exposed due to the sum insured amount being too low.
Character Homes
- A 1920s villa in Wellington would likely cost around $600,000 to rebuild today. After a major event, sourcing heritage materials and specialist craftspeople could increase the cost to $850,000. With sum insured, guess who covers that $250,000 gap?
Regional Variations
- After a disaster, that gap widens as contractors charge premiums for travelling to affected areas. Area replacement adjusts; sum insured doesn't.
- Again, this 2024 Stuff.co.nz article outlined quotes from the Insurance Council's chief executive, Tim Grafton, who stated "construction inflation has been running well ahead of the CPI - about 16% in 2022 and just under 10% in 2023, (which) clearly would have a major impact on the sum insured". This shows that costs are increasing even with a standard level of disaster.
The Cost of Sum Insured vs Area Replacement
Area replacement policies almost always costs more than sum insured policies; however, our view is that such coverage is worth considering.
Based on our research, the premium difference is real - typical homeowners can expect to pay 10% to 20% more for a policy with area replacement. At a $2,000 annual premium, that's an additional $200 to $400 per year.
However, the extra cost eliminates the risk with sum insured policies:
Which insurers offer area replacement?
Most insurers don't, because it's easier (and more profitable) to let you carry the risk. Your options are limited:
Our View: The fact that so few insurers offer it should tell you something about who is taking the risk with the sum insured. If construction inflation runs at just 10% for three years (it's been higher), and you don't update your sum insured, you're already 33% underinsured.
On a $600,000 house, that's a $200,000 gap. You may save $300 a year for 10 years by keeping with sum insured, but if you're underinsured, that $3,000 saved leaves you liable for costs of $200,000.
What is the cost?
Based on our research, the premium difference is real - typical homeowners can expect to pay 10% to 20% more for a policy with area replacement. At a $2,000 annual premium, that's an additional $200 to $400 per year.
However, the extra cost eliminates the risk with sum insured policies:
- Professional valuations: $500-800 every few years (and we believe most homeowners skip them and 'guestimate' their sum insured)
- Time spent guessing at rebuild costs, which may be insufficient when you need to claim
- The anxiety of wondering if you're sufficiently covered
- The financial disaster if you're underinsured, a situation outlined in this 2024 Stuff.co.nz article
Which insurers offer area replacement?
Most insurers don't, because it's easier (and more profitable) to let you carry the risk. Your options are limited:
- MAS (available on addresses nationwide, subject to underwriting criteria
- FMG (limited to selected rural properties only)
- A few others in specific circumstances
Our View: The fact that so few insurers offer it should tell you something about who is taking the risk with the sum insured. If construction inflation runs at just 10% for three years (it's been higher), and you don't update your sum insured, you're already 33% underinsured.
On a $600,000 house, that's a $200,000 gap. You may save $300 a year for 10 years by keeping with sum insured, but if you're underinsured, that $3,000 saved leaves you liable for costs of $200,000.
What is the cost?
- Area replacement costs more upfront - there are a few exceptions. However, compared to the alternative, we believe it offers complete peace of mind and avoids the risk of being uninsured.
- It's arguable that the real cost isn't in your premium, it's in what happens when you need to claim and discover you're only 70% covered (or worse, as this 2024 Stuff.co.nz article explains).
- For most homeowners, that extra $20-30 per month is the difference between rebuilding your life and financial ruin. New Zealand is increasingly experiencing more full-loss events, and because we're remote, one event could spike building costs 20%+ overnight.
Common Myths Challenged and Explained
"An online replacement cost calculator is enough"
Online calculators, including ours (which uses CoreLogic data), use generic estimates. They don't account for your home's specific features, local building costs, or post-disaster price spikes. They're a starting point, but we don't think they're a safety net.
"Insurance companies will be fair if I'm slightly under and make it right"
An insurance policy is a contract. If your home's insured amount is $500,000 and the rebuilding costs are $600,000, you receive $500,000. There's no "fairness" clause for underestimating.
"Building costs don't change that much"
They do - Christchurch homeowners who saw 40% increases as reported in this 2016 NZ Herald article, and building costs have increased significantly over time, as this recent industry guidance outlines.
"I can just update it every few years"
Disasters don't wait for your review cycle. Miss one major cost increase and you're exposed. Additionally, many people simply forget, despite a house being most people's biggest asset.
Online calculators, including ours (which uses CoreLogic data), use generic estimates. They don't account for your home's specific features, local building costs, or post-disaster price spikes. They're a starting point, but we don't think they're a safety net.
"Insurance companies will be fair if I'm slightly under and make it right"
An insurance policy is a contract. If your home's insured amount is $500,000 and the rebuilding costs are $600,000, you receive $500,000. There's no "fairness" clause for underestimating.
"Building costs don't change that much"
They do - Christchurch homeowners who saw 40% increases as reported in this 2016 NZ Herald article, and building costs have increased significantly over time, as this recent industry guidance outlines.
"I can just update it every few years"
Disasters don't wait for your review cycle. Miss one major cost increase and you're exposed. Additionally, many people simply forget, despite a house being most people's biggest asset.
Making the Right Choice for Your Situation
Our view is simple - Area Replacement may be more suitable if you:
However, Sum Insured may be best if you:
Next steps if you want area replacement:
If, having reviewed prices and policies, switching to area replacement makes sense, you'll need to:
- Want certainty and peace of mind over the repair or replacement of your house should disaster strike
- Prefer "set and forget" insurance that doesn't leave you carrying the risk of shortfalls
- Can afford slightly higher premiums for complete protection
- Own an older, character, or architecturally unique home
- Have a lifestyle block or rural property
- Live in a disaster-prone area
However, Sum Insured may be best if you:
- Have a standard home in a low-risk area
- Actively monitor building costs and update coverage
- Are comfortable carrying underinsurance risk
- Need the absolute lowest premiums
- Plan to self-insure any gaps you're faced with during your claim
Next steps if you want area replacement:
- Only a few insurers offer it - you'll need to get quotes from MAS, FMG (rural), and selected others
- Compare your area replacement quotes with sum insured quotes to see real premium differences
- You'll need to factor in the peace of mind value, not just price, to determine a realistic comparison
If, having reviewed prices and policies, switching to area replacement makes sense, you'll need to:
- Get a new policy confirmed before cancelling the existing one.
- You'll receive a pro-rata refund from the current insurer
- Don't risk being underinsured once you've decided to switch - don't wait for your existing policy's renewal date
Know This: Area Replacement Insurance Isn't Always "Set and Forget"
While area replacement cover offers automatic adjustments for rising rebuild costs based on your home's floor area, it's not entirely "set and forget".
Anyone with an area replacement policy still has the responsibility to notify their insurer of any significant changes to their property. This can include extensions, major renovations or alterations that affect the floor area or building specifications. Failure to do so may result in coverage gaps or claim denials.
Beyond such requirements, key exclusions and limitations typically apply, similar to sum insured policies:
Like any house insurance policy, there may be ongoing premium hikes that are driven by factors beyond just rebuild cost inflation. These can include broader market trends (e.g., reinsurance costs, climate risk assessments), your claims history, location-specific risks, or insurer-wide adjustments.
In high-inflation periods or post-disaster environments, premiums can rise significantly to reflect updated per-square-metre rates calculated by the insurer.
Anyone with an area replacement policy still has the responsibility to notify their insurer of any significant changes to their property. This can include extensions, major renovations or alterations that affect the floor area or building specifications. Failure to do so may result in coverage gaps or claim denials.
Beyond such requirements, key exclusions and limitations typically apply, similar to sum insured policies:
- Standard exclusions: Events like gradual damage (e.g., rot, corrosion, or wear and tear), intentional acts, faulty workmanship, or unpermitted building work are not covered.
- Natural disaster specifics: While coverage is provided for events such as earthquakes or floods, there may be caps or sub-limits for certain add-ons, and the Natural Hazards Commission, previously known as the EQC (Earthquake Commission), levies apply for natural hazards up to their respective limits.
- Betterment rules: Insurers pay for like-for-like replacement, but not for upgrades unless required by current building codes. Luxury or non-standard features might require additional endorsements.
Like any house insurance policy, there may be ongoing premium hikes that are driven by factors beyond just rebuild cost inflation. These can include broader market trends (e.g., reinsurance costs, climate risk assessments), your claims history, location-specific risks, or insurer-wide adjustments.
In high-inflation periods or post-disaster environments, premiums can rise significantly to reflect updated per-square-metre rates calculated by the insurer.
The Bottom Line
Our view is simple - sum insured makes you the insurer of last resort. It's fine if you have your estimate correct, but that's nearly impossible to do. Area replacement makes your insurance company actually insure you.
We've seen it play out repeatedly - Christchurch earthquakes, Auckland floods, Cyclone Gabrielle. Each time, numerous homeowners discovered their "full replacement" insurance wasn't full at all. They thought they were paying for protection but were actually (and unknowingly) taking a big risk that building costs wouldn't spike before they needed to make a claim.
The uncomfortable truth? Many New Zealanders are walking around with a five-figure or six-figure liability they are unaware of. A $600,000 sum insured policy may, after the next major event, rebuild only 70% of a house. The other 30%? That's on the homeowner.
Area replacement policies are likely to cost more, typically 10-20% extra. But here's the perspective nobody talks about - you're not paying extra for "better" insurance. You're paying the real cost of actual insurance. Sum insured is just cheaper because you're carrying most of the risk yourself.
For the vast majority of homeowners, especially those in high-risk and disaster-prone areas, area replacement isn't just the better option. It's the only option that provides genuine protection.
Area replacement avoids the problem we read about in the media, where people who had saved on their policy costs for a decade then faced a $150,000 shortfall. They saved $3,000 but lost their financial security. That's not being financially savvy - it's potentially failing to protect your biggest asset.
What can you do to avoid risks?
We've seen it play out repeatedly - Christchurch earthquakes, Auckland floods, Cyclone Gabrielle. Each time, numerous homeowners discovered their "full replacement" insurance wasn't full at all. They thought they were paying for protection but were actually (and unknowingly) taking a big risk that building costs wouldn't spike before they needed to make a claim.
The uncomfortable truth? Many New Zealanders are walking around with a five-figure or six-figure liability they are unaware of. A $600,000 sum insured policy may, after the next major event, rebuild only 70% of a house. The other 30%? That's on the homeowner.
Area replacement policies are likely to cost more, typically 10-20% extra. But here's the perspective nobody talks about - you're not paying extra for "better" insurance. You're paying the real cost of actual insurance. Sum insured is just cheaper because you're carrying most of the risk yourself.
For the vast majority of homeowners, especially those in high-risk and disaster-prone areas, area replacement isn't just the better option. It's the only option that provides genuine protection.
Area replacement avoids the problem we read about in the media, where people who had saved on their policy costs for a decade then faced a $150,000 shortfall. They saved $3,000 but lost their financial security. That's not being financially savvy - it's potentially failing to protect your biggest asset.
What can you do to avoid risks?
- Check your policy - if you have sum insured, calculate your real exposure and challenge the number. Is it enough? How much would it cost to adjust your existing policy with your insurer?
- If you have area replacement, you are covered regardless of the costs so long as the size of your house remains the same.
- If you're shopping for insurance, the cheapest quote might be the most expensive mistake you ever make.
- Because when your house is gone and rebuild costs have spiked significantly all over New Zealand, the only thing that matters is whether your insurance company pays out for the cost of replacement. If it won't, you'll need to find the difference yourself - few homeowners can do that.
Important: Understand the Hidden Risk Most Homeowners Don't Know They're Carrying
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- If you have sum insured, you're betting building costs won't spike 40-70% before you claim - a bet that failed thousands after Christchurch and Cyclone Gabrielle.
- MAS area replacement eliminates this risk entirely with coverage based on square meters, not dollar guesses. While sum insured leaves you exposed to $200,000+ shortfalls, MAS covers the actual rebuild cost no matter how high prices surge.
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- MAS is the only mainstream insurer offering true area replacement. No caps, no shortfalls, no annual revaluations. Just complete protection when disaster strikes. The 10-20% higher premium eliminates 100% of your rebuild risk. Check Your Real Coverage Now
- The MAS Difference: As a not-for-profit owned by members, MAS doesn't profit from claim denials or coverage gaps. They exist to pay claims, not protect shareholder profits. That's why they're the only insurer offering true area replacement.
- Important: The cheapest insurance is expensive if it leaves you $200,000 short. The best insurance - the kind that actually works - costs slightly more but delivers when disaster strikes.
Frequently Asked Questions
Why don't all insurers offer area replacement if it's so much better?
Simply put, it's more profitable for you to carry the risk. With sum insured, insurers know exactly what their maximum payout is and can price the policy accordingly. If rebuild costs spike, the problem becomes the homeowner, not the insurer. With area replacement, the insurer must pay the actual costs to rebuild your home, allowing you to live in it. Most insurers prefer the certainty (and profit) of capping their exposure.
Why do MAS and a few other insurers offer area replacement?
MAS, for example, is a not-for-profit organisation owned by members, not shareholders. They exist to serve policyholders, not generate profits. This fundamentally different structure means:
For MAS, offering area replacement is a competitive advantage. While shareholder-owned insurers focus on profits, MAS can offer genuine protection that attracts and retains members for life. This is reflected in the reviews from policyholders, who tend to stay with MAS for years.
The business model difference:
That's why only MAS and a couple of specialist insurers offer area replacement - it only makes business sense when your priority is protecting members, not profits.
- No profit pressure: They don't need to minimise claims to boost share prices
- Long-term thinking: Happy members who stay for decades are more valuable than short-term profits
- Reputation matters: As a not-for-profit, their success depends on member trust, not marketing budgets
- Risk expertise: 100+ years of data helps them price area replacement accurately
For MAS, offering area replacement is a competitive advantage. While shareholder-owned insurers focus on profits, MAS can offer genuine protection that attracts and retains members for life. This is reflected in the reviews from policyholders, who tend to stay with MAS for years.
The business model difference:
- Traditional insurers: Minimise payouts to maximise profits and keep shareholders happy
- MAS (not-for-profit): Pay claims fairly, keep members happy and grow quietly
That's why only MAS and a couple of specialist insurers offer area replacement - it only makes business sense when your priority is protecting members, not profits.
I've been with sum insured for 20 years with no problems. Why consider changing to area replacement now?
Because you haven't needed to claim for a total loss yet. That's like saying you've never had a car accident, so you don't need insurance. The risk isn't about the past 20 years - it's about the next major event. With climate change driving more extreme weather and construction costs increasingly volatile, the risk of being caught short has never been higher.
How much underinsurance risk do I have?
Here's a quick test - when did you last update your sum insured? If it has been three years or more, you're likely underinsured by at least 10-30%. Construction inflation has a long-term average of 4.2%, although this is lower than the COVID-era peak of 10.4% in late 2022. However, this is before any disaster-driven spikes. On a $600,000 house, being 30% underinsured means a $180,000 personal liability.
Can't I just update my sum insured every year?
You can, but will you? And even if you do, you're still guessing at future costs. What happens if disaster strikes the month before your annual review? Or if building costs spike suddenly, like in Christchurch? Annual updates help, but don't eliminate the risk - only area replacement does that.
Is area replacement the same as "replacement cover"?
No, and this confuses many people because the names are so similar. Here's the key difference:
"Replacement cover" (most insurers offer this):
"Area replacement" (only MAS, FMG and few others):
Example: Your house burns down. With "replacement cover" at $600,000 sum insured, your insurer manages the rebuild but stops paying at $600,000. With area replacement, they manage the rebuild AND pay the full cost even if it's $750,000.
The names sound similar, but the protection is completely different. Replacement cover is about how they pay (rebuilding vs cash). Area replacement is about how much they pay (actual cost vs capped amount).
"Replacement cover" (most insurers offer this):
- Just means they'll rebuild your house instead of paying money into your bank account
- The amount you receive is still capped at your sum insured amount ($600,000 policy = $600,000 maximum)
- The insurer manages the rebuild process, handles builders and contractors
- A project management is included - this cost doesn't come out of your sum insured
- But if rebuild costs $750,000, you still pay the $150,000 difference if your sum insured was $600,000
"Area replacement" (only MAS, FMG and few others):
- Pays whatever it actually costs to rebuild based on floor area
- There is no cap based on sum insured - coverage adjusts to real costs
- If rebuild costs spike to $750,000, they pay $750,000
- You still get full project management included
Example: Your house burns down. With "replacement cover" at $600,000 sum insured, your insurer manages the rebuild but stops paying at $600,000. With area replacement, they manage the rebuild AND pay the full cost even if it's $750,000.
The names sound similar, but the protection is completely different. Replacement cover is about how they pay (rebuilding vs cash). Area replacement is about how much they pay (actual cost vs capped amount).
What if I have a mortgage - can I switch to area replacement?
Yes. Your bank typically requires you to have adequate insurance, but they don't typically specify the type. Area replacement better protects the bank's interest because it ensures full rebuild coverage. Just notify your bank of the policy change after switching.
Do I need professional valuations with area replacement?
No - that's one of the benefits. The insurer calculates rebuild costs based on your floor area and its current data. With sum insured, the best way to minimise risk is to get professional valuations every 3-5 years (at $500+ each time). Most people skip this, which is exactly how they end up underinsured.
What about my excess - is it different with area replacement?
Your excess works the same way with both types. The difference is what happens after you pay it. With sum insured, you might pay your $600 excess, then discover you're also liable for a $150,000 shortfall. With area replacement, the excess is your only out-of-pocket cost.
I have a new build - do I need area replacement?
New builds face risk. Yes, you know exactly what it costs to build today, but what about in 5 years? Or after a disaster? The Christchurch rebuild demonstrated that even simple, modern homes cost 40% more to rebuild when everyone needed builders simultaneously. Unless you plan to update your sum insured regularly, area replacement provides better protection for full loss.
How do I check if I have sum insured or area replacement?
Finding your coverage type is straightforward - grab your policy schedule and look for these telltale signs:
Other giveaways:
Not sure where to find this? Check your renewal notice, policy documents, or call your insurer and ask directly: "Do I have sum insured or area replacement cover?"
- If you see a dollar amount (like "Sum Insured: $500,000") = you have sum insured
- If you see square meters (like "200sqm residential dwelling") = You have area replacement
Other giveaways:
- Terms like "maximum settlement" or "policy limit" = Sum insured
- References to "replacement cost per square meter" = Area replacement
Not sure where to find this? Check your renewal notice, policy documents, or call your insurer and ask directly: "Do I have sum insured or area replacement cover?"
What are the warning signs I'm underinsured?
These red flags suggest you're carrying more risk than you realise:
If any of these apply, you're probably underinsured. The question isn't if you have a gap - it's how big that gap is.
- It has been 3+ years since you reviewed your sum insured (building costs have likely jumped 30%+)
- You used an online calculator without professional input (these miss unique features and local factors)
- Your house isn't standard - character features, unusual materials, or heritage elements cost more to replace
- You're in a remote or high-demand area where builders charge premium rates
- Your sum insured is ancient - still set at what you paid for the house or when you first got insurance
If any of these apply, you're probably underinsured. The question isn't if you have a gap - it's how big that gap is.
Important: Understand the Hidden Risk Most Homeowners Don't Know They're Carrying
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- If you have sum insured, you're betting building costs won't spike 40-70% before you claim - a bet that failed thousands after Christchurch and Cyclone Gabrielle.
- MAS area replacement eliminates this risk entirely with coverage based on square meters, not dollar guesses. While sum insured leaves you exposed to $200,000+ shortfalls, MAS covers the actual rebuild cost no matter how high prices surge.
Consider Switching to Area Replacement House Insurance to Eliminate Rebuild Risk
- MAS is the only mainstream insurer offering true area replacement. No caps, no shortfalls, no annual revaluations. Just complete protection when disaster strikes. The 10-20% higher premium eliminates 100% of your rebuild risk. Check Your Real Coverage Now
- The MAS Difference: As a not-for-profit owned by members, MAS doesn't profit from claim denials or coverage gaps. They exist to pay claims, not protect shareholder profits. That's why they're the only insurer offering true area replacement.
- Important: The cheapest insurance is expensive if it leaves you $200,000 short. The best insurance - the kind that actually works - costs slightly more but delivers when disaster strikes.
