# NZ insurance glossary

> Plain English definitions of common NZ insurance terms. Understand excess, premium, sum insured, agreed value, EQC levy and more.

Canonical: https://kapiinsurance.co.nz/insurance-jargon-glossary/

Insurance documents use words most people never meet anywhere else. Policy wordings, product disclosure statements, claims forms. The definitions here are the ones that decide whether a claim gets paid.

We wrote this glossary in plain English. The terms work the same whether you insure a car in Auckland or a house in Tauranga. If a term is missing, [get in touch](https://kapiinsurance.co.nz/contact/) and we will explain it.

## What do common insurance terms mean?

These are the meanings the terms carry in a standard New Zealand policy wording. Where insurers differ, the wording on your own schedule is the one that counts.

- **Agreed Value**: A dollar figure you and the insurer lock in when the policy starts, representing what your vehicle or item is worth. If it gets written off or stolen, that's what you receive, minus your excess. You see this most often with car insurance.
- **Comprehensive Cover**: The top tier of cover. With car insurance, comprehensive typically pays for damage to your own vehicle, damage to other people's vehicles and property, theft, fire, and weather events. It costs more than third party cover.
- **Cruising Limits**: The geographic area your boat insurance covers, stated in your policy schedule. Inland and coastal waters are standard, and some NZ pleasurecraft wordings stretch to 200 nautical miles off the North and South Islands. Heading to the Pacific? That needs an extended cruising agreement arranged before you leave.
- **Dual Pricing**: When an insurer quotes new customers less than it charges existing customers for the same risk. Also called the loyalty penalty or loyalty tax. The fix is to price the cover again at every renewal instead of letting the policy roll over.
- **Endorsement**: A written change to your policy that tweaks the standard terms. Say you want to add a young driver to your car insurance, or extend cover while your home is being renovated. That gets added as an endorsement.
- **EQC Levy**: The old name for the Natural Hazards Insurance levy, a charge built into your home insurance premium. It funds the Natural Hazards Commission Toka Tū Ake (formerly EQC), which covers the first $345,000 (including GST) of natural hazard damage to your home. Contents policies no longer carry this levy, because contents cover from EQC ended in 2019.
- **Excess**: The bit you pay yourself when you make a claim. Choose a higher excess and your premium drops, but you'll pay more out of pocket if something goes wrong. Watch out: some policies stack different excesses for different claim types.
- **Exclusion**: Something your policy won't pay for. Every policy has exclusions, and they differ between insurers. Read them before you buy, and look for the specific event you're worried about. A gap you find in the wording is cheaper than one you find at claim time.
- **Fitted and Loose Contents**: A campervan and caravan distinction that decides where your stuff is covered. Fitted items (cabinetry, solar panels, awnings) form part of the vehicle's sum insured. Loose items (laptops, camping gear, clothes) sit under a separate contents or personal effects limit, usually a few thousand dollars with per-item caps.
- **Fronting**: Insuring a car in a parent's name when a young driver is really the main driver, to dodge the higher premium. It counts as misrepresentation, not a clever workaround. If the insurer figures it out at claim time, the claim can be declined and the policy cancelled.
- **Functional Replacement**: A home insurance settlement basis that repairs or rebuilds to a similar standard using today's materials and methods, rather than replicating the original exactly. You see it on older homes where matching native timber or ornate plasterwork would cost far more than a modern equivalent.
- **GAP Cover**: Short for guaranteed asset protection. If your financed car is written off and the insurance payout comes in under what you still owe the lender, GAP cover pays the difference. Without it, you can end up making repayments on a car that no longer exists.
- **Hidden Gradual Damage**: Damage that builds up slowly and isn't obvious until it's already done. Think a water leak behind a wall that's been dripping for months. Some home insurance policies cover it, but there are specific conditions and limits, so check your wording.
- **Indemnity**: The principle behind insurance: putting you back in the same financial position you were in before the loss happened. Not better off, not worse off. Just back to where you were.
- **Indexation**: An automatic increase applied to your sum insured at renewal so cover keeps pace with inflation and rising rebuild or replacement costs. Also called inflation adjustment. Still check the new figure each year. It's an estimate, not a valuation, and it can drift away from reality in both directions.
- **Knock-for-Knock**: An arrangement where each insurer pays its own customer's damage after a two-car accident, regardless of who was at fault. It speeds up settlement, but your insurer can still record the accident against you and recover costs from the other side behind the scenes.
- **Legal Liability**: Your legal responsibility when you cause injury to someone or damage their property. Most home, contents and car insurance policies include legal liability cover, but there's always a cap on how much they'll pay.
- **Market Value**: What your vehicle or item would realistically sell for right now, on the open market. Unlike agreed value, market value shifts over time and the insurer decides the figure when you claim. That can mean a lower payout than you expected.
- **Natural Hazard**: Earthquakes, volcanic eruptions, hydrothermal activity, tsunamis, natural landslips. The Natural Hazards Commission Toka Tū Ake (formerly EQC) covers the first portion of home claims from these events, wherever you are in the country. Contents claims from natural hazards sit entirely with your private insurer.
- **No-Claims Bonus**: A premium discount you earn by not making claims. Go a few years claim-free and the discount builds up. Some insurers offer protection on your no-claims bonus so a single claim won't wipe it out.
- **Policy Wording**: The actual document that spells out what is and isn't covered, plus all the terms, conditions and exclusions. This is the contract between you and the insurer. It is not light reading. It is the document that decides a claim.
- **Pre-Accident Valuation**: The insurer's assessment of what your vehicle was worth immediately before it was damaged or stolen, often shortened to PAV. On a market value policy this figure drives your payout, so if it looks light, challenge it with comparable listings and a written valuation.
- **Premium**: What you pay for your insurance, usually monthly or once a year. The price depends on the type of cover, your claims history, where you live, and how risky the insurer considers you to be.
- **Replacement Value**: What it would cost to buy a brand new version of the same item. With contents insurance, you're either on replacement value (new for old) or indemnity (what it was worth at the time). The difference matters when you claim.
- **Specified Item**: A valuable item you've individually listed on your contents policy. An engagement ring, a laptop, a camera. These get their own cover limit and are often covered even when you take them out of the house.
- **Subrogation**: After your insurer pays your claim, they can chase the person (or their insurer) who caused the loss to recover what they paid out. So if someone rear-ends you and your insurer covers the repair, they'll go after the other driver's insurer to get that money back.
- **Sum Insured**: The ceiling on what your insurer will pay for a claim. For home insurance, your sum insured should match the full rebuild cost. Set it too low and you are underinsured, which you discover after a fire or an earthquake.
- **Third Party**: Someone else, or their property, that's affected by an incident involving you. Third party car insurance only covers what you do to other people's vehicles and property. Your own car is not covered.
- **Underinsured**: When your cover limits fall short of what you'd need for a full payout. Rebuild costs in Auckland and Wellington have climbed over the past few years, which pushes more homes into this position.
- **Uninsured Third Party Extension**: A benefit built into some third party car policies that pays for damage to your own car when an identified uninsured driver caused the accident. It's capped at a sub-limit that varies by insurer, and you usually need the other driver's details before it applies.
- **Unoccupancy Clause**: A condition that reduces or suspends cover once your home has sat empty beyond a set period, often around 60 days. Caravan policies have their own version, sometimes kicking in after about 30 days unless the van is in supervised storage. Tell your insurer before a long stint away.
- **Unspecified Item**: Everything in your home that you haven't individually listed on the policy. These items are covered under your total contents sum insured, but each one is capped at a per-item limit the insurer sets. If something is worth more than that limit, you need to specify it.

## Dig into the detail on your cover

These guides show how each type of cover works in practice.

## Related
- [Car Insurance](https://kapiinsurance.co.nz/car-insurance/) - Comprehensive vs third party, agreed value, and what to look for.
- [Home Insurance](https://kapiinsurance.co.nz/home-insurance/) - Sum insured, NHCover, natural disaster cover and getting the numbers right.
- [Contents Insurance](https://kapiinsurance.co.nz/contents-insurance/) - Specified vs unspecified items, replacement value, and what's covered away from home.