Dollars and Sense: What are the pros and cons of cutting back on insurance?

Sunday, 23 November 2025

Even older cars cost a lot to fix these days as parts may have to be flown in from overseas.

Senior business reporter Rob Stock answers your money questions. Got a question for Sunday magazine? Email it to sundaymagazine@stuff.co.nz

QUESTION: In recent media reports people are cutting back on home insurance premiums to help the battle cost of living crisis; what are the pros and cons of this?

ANSWER: People often get the basic concept of insurance wrong.

They think, for example, travel insurance is about claiming for a phone they dropped in the hotel swimming pool.

It isn’t. It’s for when you break your leg horribly in the US, and have to deal with the grossly expensive and complicated business of getting it treated and then getting home.

This is a catastrophic event beyond the means of the ordinary person.

House insurance premiums have surged nearly 900% since 2000, with address-based pricing and rising repair costs blamed. Wellington households face the highest average bills at $4589 a year, leaving many struggling to keep cover.

Insurance should be about making sure there’s money available to cope with things you cannot cope with yourself.

Your big risks change throughout your life as you buy assets (house, car, etc), do new things (drive, travel overseas, get a career), and become a parent.

Last year I was rear-ended on a motorway on-ramp. The traffic stopped suddenly. There was a rear-ending in front of me. I like a good stopping distance, so I executed my emergency stop. So did the chap behind me.

Sadly, the car behind him didn’t.

He slammed into the poor soul behind me, and shunted him into me.

No-one was hurt, but the damage to my car cost thousands as a bumper panel had to be flown in from overseas. The car behind me got spiked front and back. The young lad who did the shunting was uninsured.

My insurer paid up. I assume so did the insurer of the car behind me. Then they would have demanded the money from the at-fault driver. He would have had to find the better part of $10,000. That will probably set him back several years. Third party car insurance would have been a god-send to him.

He’s lucky the two cars he damaged weren’t Teslas.

The big insurable risks in a person’s life, in my book, are: damaging other people’s stuff (like my young shunter), your biggest physical assets (house, business, car, etc), your health, your partner’s health, your life (when people depend on you), your partner’s life, and something terrible happening when you are overseas.

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There is insurance for each of these things, though in no case is it watertight. Read the policies, learn about their limits, and the duties you have not to cause a loss to your insurer.

Very few budgets stretch to bubble-wrap level insurance cover.

Choices must be made.

Higher excesses on house insurance can bring down the cost. You can drive a cheaper car. You can make sure you do not buy a house in a flood zone. You can stay healthy.

But ultimately, you have to work out (possibly with the help of an adviser) what catastrophes would totally derail you (injury overseas, house damage, getting cancer while working, rear-ending a Ferarri, etc), and then make your insurance decisions.

The “pros” of cutting back on insurance are simple. You have more money to spend on other things.

I understand the pressure. I saw Climate Minister Simon Watts talking earlier this month. He said house insurance had gone up 62% in the last five years (He meant on average).

“About 25% of the cost of living challenge is down to insurance premiums,” he said.

The cons are also simple.

You carry more risk, and should something catastrophic happen, you may not be able to cope with it.

Disclaimer: The information in this column is provided for general information only and is not intended as financial advice. If you require expert advice we encourage you to seek assistance from a professional adviser.