Insurance can be confusing enough without bad information making it worse. From urban legends about car colour to widespread misunderstandings about how claims work, this guide takes on 11 of the most common insurance myths in New Zealand and puts them to the test with real facts and industry data.
Insurance myths are not harmless. Acting on bad information can lead to gaps in your cover, unexpected costs at claim time, or paying more than you need to for a policy that does not fit your situation.
A 2024 survey by Consumer NZ found that many New Zealanders hold at least one significant misconception about how their insurance works. The Insurance and Financial Services Ombudsman (IFSO) regularly sees disputes that stem from misunderstandings about what a policy does and does not cover.
This guide tackles 11 of the most persistent insurance myths in New Zealand, explains where they come from, and gives you the facts so you can make more informed decisions. For a broader overview of how insurance works, see our guide to how insurance works in NZ.
Verdict: Mostly False
This is arguably the most widespread insurance myth in New Zealand - and it is largely unfounded. Data from the Insurance Council of New Zealand (ICNZ) shows that around 90% of general insurance claims are accepted and paid. That figure has remained consistently high over many years.
Claims are declined for specific, documented reasons - not on a whim. The most common reasons include the event not being covered under the policy wording, the policyholder failing to meet their duty of disclosure, or the claim falling within a listed exclusion. In most cases, these are things the policyholder can check before they need to claim by reading their policy wording.
That said, the myth persists for a reason. When a claim is declined, it can feel deeply unfair - especially during a stressful time. The IFSO exists as a free dispute resolution service for exactly these situations. If you believe your claim has been unfairly declined, you have the right to challenge the decision.
NZ insurers who are members of the ICNZ are also bound by the Fair Insurance Code, which sets minimum standards for claims handling, transparency, and treating customers fairly.
Verdict: False
This is one of the most persistent insurance urban legends - not just in New Zealand but around the world. The truth is that no NZ insurer uses vehicle colour as a rating factor for car insurance premiums. Your car's colour has zero impact on your premium.
What does affect your car insurance premium is the vehicle's make and model, its age, engine size, safety rating, how the car is used, where it is kept, and the driver's age and claims history. A red Toyota Corolla and a white Toyota Corolla of the same year and specification will generate the same estimated premium, all other factors being equal.
The myth likely originated from the association between red cars and sporty or high-performance vehicles, which do tend to cost more to insure due to their higher repair costs and risk profile - not their colour.
For more on what actually drives your premium, see our guide to how insurance works or visit the Sorted.org.nz insurance guide for tips on managing your costs.
Verdict: False
Being a safe and experienced driver reduces your risk of causing an accident - but it does not eliminate it. Even the most cautious driver can be hit by someone else, have their car stolen, or suffer damage from a natural event like a hailstorm or flood.
New Zealand does not have compulsory third-party motor insurance (unlike Australia and most of Europe). This means if an uninsured driver causes damage to your vehicle, there is no guaranteed fund to cover your losses. You would need to pursue the at-fault driver personally, which can be difficult and expensive if they do not have the means to pay.
ACC covers personal injuries from accidents, but it does not cover damage to vehicles or property. Without car insurance, you bear the full cost of repairs or replacement yourself.
According to the ICNZ, an estimated 5-10% of vehicles on NZ roads are uninsured. Being involved in an accident with an uninsured driver - even if it is not your fault - is a real risk that car insurance can help protect against.
At minimum, third-party car insurance is worth considering for every driver. It protects you from liability if you accidentally damage someone else's property. For a detailed comparison, see our comprehensive vs third-party guide.
Verdict: False
A lower premium does not always mean better value. Cheaper policies often come with higher excess amounts, lower cover limits, more exclusions, or limited claims support. If you need to claim and discover your cover does not actually protect you, the money you saved on premiums becomes meaningless.
The key is to compare like with like. When looking at estimates from different providers, check the excess, the sum insured, and - most importantly - what is and is not covered. A policy that costs $50 more per year but includes glass cover, roadside assistance, or a lower excess may save you hundreds at claim time.
Consumer NZ regularly finds that satisfaction with insurers depends heavily on the claims experience, not just the price of the policy. Their annual insurance satisfaction surveys consistently show that the cheapest brands are not always the highest-rated.
Price is an important factor, but it is worth weighing it against the level of cover, the insurer's claims reputation, and the policy terms. Our guide to how insurance works covers this in more detail.
Verdict: False
You can switch insurance providers at any time in New Zealand. You are not locked in for the full policy term. Most general insurance policies (car, home, contents) allow you to cancel mid-term, though the process and any applicable refund vary between providers.
If you pay your premium annually, most insurers will provide a pro-rata refund for the unused portion of your policy when you cancel. If you pay monthly, you can typically cancel at the end of any billing period. Some policies include a cooling-off period (usually 14 to 30 days) during which you can cancel for a full refund.
The Financial Markets Authority (FMA) notes that consumers have the right to change providers and should feel empowered to do so if they find better cover or a more competitive price. There is no penalty for switching in most cases, though it is worth checking the fine print of your current policy for any cancellation terms.
When switching, make sure your new policy is active before you cancel the old one. Even a single day without cover could leave you exposed. For more on the switching process, see our guide to how insurance works.
Verdict: False
Every insurance policy has exclusions - specific situations, events, or types of damage that are not covered. No policy covers absolutely everything, no matter how comprehensive it claims to be.
Common exclusions across NZ insurance policies include general wear and tear, deliberate or intentional damage, damage caused while under the influence of drugs or alcohol, pre-existing damage or conditions, and losses arising from illegal activity. Some policies also exclude specific natural disaster types or have sub-limits for certain categories of items.
The Consumer NZ insurance guide stresses the importance of reading the exclusions section of any policy before you buy. The exclusions are where the real surprises hide.
Under New Zealand's Insurance Contracts Act 2024, insurers are required to present policy terms clearly and to highlight any unusual exclusions. If you are ever unsure about what is covered, contact the insurer directly and ask them to confirm in writing.
For a guide to reading policy documents, including how to spot important exclusions, see our insurance jargon buster.
Verdict: Partly True
It is true that young drivers (typically under 25) generally pay higher car insurance premiums than older, more experienced drivers. Statistically, younger drivers are involved in more accidents per kilometre driven, and insurers price this risk accordingly. However, "higher" does not mean "unaffordable" - and there are several ways to bring costs down.
Options that may help reduce premiums for younger drivers include choosing a vehicle with a lower insurance group rating, opting for a higher voluntary excess, being added as a named driver on a parent's policy rather than holding a separate policy, building a no-claims history early, and completing an approved defensive driving course.
Some NZ insurance brands specifically cater to younger drivers or offer products designed to be more accessible. Premiums also decrease over time as the driver gains experience and a clean claims record.
The ICNZ car insurance information page explains how age and experience factor into premium calculations. For more tips on getting cover as a young driver, see our young drivers car insurance guide.
Verdict: False
Your landlord's insurance covers the building and any fixtures that belong to the landlord. It does not cover your personal belongings - your furniture, electronics, clothing, or anything else you own. If there is a fire, flood, or burglary, your possessions are not protected unless you have your own contents insurance.
This is a surprisingly common misconception among renters in New Zealand. According to Sorted.org.nz, many renters go without contents insurance, often because they assume their landlord's policy provides some level of cover for tenants. It does not.
Contents insurance for renters is generally quite affordable - often significantly cheaper than cover for homeowners, because there is no building component. Policies can cover theft, accidental damage, fire, and natural disaster damage to your belongings.
It is worth doing a quick mental inventory of what you own and what it would cost to replace everything if the worst happened. For most people, the total replacement cost is far higher than they expect. Compare.org.nz provides estimates for contents insurance that may help you assess your options.
Verdict: Mostly False
Many people assume that loyalty to an insurer is rewarded with the best possible price. In practice, the opposite is often true. The insurance industry - in New Zealand and globally - has a well-documented pattern of "price walking," where long-standing customers gradually pay more than new customers for the same level of cover.
A 2021 FMA report on conduct in the general insurance industry highlighted concerns about fair pricing for existing customers. Insurers are increasingly being scrutinised for their renewal pricing practices.
This does not mean you should automatically switch every year. Some insurers do offer multi-year loyalty benefits, and there can be advantages to maintaining a long relationship with a provider - particularly if you have built up a strong no-claims record. But it is worth comparing estimates at renewal time to check that your premium is still competitive.
The Consumer NZ insurance hub consistently encourages consumers to shop around at renewal. Even getting one or two alternative estimates provides a benchmark for whether your current insurer's price is reasonable.
Verdict: It Depends
Third-party car insurance covers damage you cause to other people's vehicles and property, but it does not cover damage to your own vehicle. Whether that level of cover is sufficient depends entirely on your personal circumstances - the value of your car, your financial situation, and your risk tolerance.
If you drive an older vehicle with a low market value, third-party cover may be a reasonable choice. The cost of comprehensive cover may be disproportionate to the potential payout if the car is written off. However, if your car is worth more than you could comfortably replace out of pocket, comprehensive cover is worth considering.
It is also worth remembering what third-party cover does not protect against. Theft, fire, vandalism, natural disaster damage, and damage from an uninsured driver hitting your car are typically not covered by basic third-party policies. Third-party, fire and theft provides a middle ground that may suit some drivers.
For a full comparison of cover levels and what each one protects, see our comprehensive vs third-party guide and our guide to choosing a cover level.
Here is a quick reference table summarising all 11 myths covered in this guide, with the verdict for each one.
| Myth | Verdict | Key Takeaway |
|---|---|---|
| Insurers always try to avoid paying | Mostly False | Around 90% of NZ general insurance claims are accepted. Most declines are due to exclusions or non-disclosure. |
| Red cars cost more to insure | False | Vehicle colour is not a rating factor. Make, model, age, and driver profile determine your premium. |
| Good drivers do not need insurance | False | Even safe drivers face risks outside their control - theft, natural disasters, uninsured motorists. |
| The cheapest policy is the best deal | False | Lower premiums often come with higher excess, more exclusions, or lower cover limits. Compare the full picture. |
| You cannot switch insurers mid-policy | False | You can switch at any time. Most insurers offer pro-rata refunds for the unused portion of your premium. |
| Making a claim always increases your premium | Partly True | It can, but not always. Not-at-fault claims and some claim types may have no impact on your premium. |
| Insurance covers everything | False | Every policy has exclusions. Read the policy wording carefully before you buy. |
| Young drivers cannot get affordable cover | Partly True | Premiums are higher for young drivers, but comparing providers and choosing a lower-risk vehicle can help significantly. |
| Landlord's insurance covers your belongings | False | A landlord's policy only covers the building. Renters need their own contents insurance. |
| Loyalty gets you the best price | Mostly False | Long-standing customers often pay more than new customers. Comparing at renewal time is worth the effort. |
| Third-party cover is always enough | It Depends | It depends on your car's value and your ability to cover a loss yourself. For higher-value vehicles, comprehensive cover is worth considering. |
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