Insuring Your Home: What You Need To Know

When it comes to insuring your house, it's important to get the right protection. Home insurance covers the cost of repairing or replacing your house when something goes wrong. The price is an important factor, but it's also crucial to focus on what you need and what is (and isn't) covered by different policies.

Home insurance typically covers the building itself and fixtures like plumbing and built-in cabinetry. It can also cover legal costs if someone is injured on your property. Contents insurance, on the other hand, covers household items and personal belongings, such as furniture, electronics, clothes, and jewellery. As a homeowner, you need to insure both the building and its contents.

To determine how much to insure your house for, you need to calculate the rebuilding cost of your home accurately. This includes considering factors such as the size of your home, the quality of fixtures and fittings, and any additional features like garages, balconies, or security systems. You should also take into account the cost of replacing your belongings and choose a policy that suits your needs.

Remember, the goal is to ensure you have enough financial capacity to rebuild or replace your home and belongings if the worst happens.

Sum insured vs total replacement cover

When it comes to home insurance, there are two main types: sum-insured cover and total replacement cover. Sum-insured cover is the most common type, where you set a fixed amount for which your home is covered, which is the maximum amount your insurer will pay out in the event of a claim. However, this can lead to underinsurance, where the cost of rebuilding your home is higher than the sum insured. This may occur due to increased demand for materials and labour, or other factors.

Total replacement cover, on the other hand, provides coverage for the full cost of repairing or rebuilding your home to its previous state, without a specific sum-insured limit. This type of cover is less common and tends to be more expensive, but it offers peace of mind that you will not be underinsured.

With sum-insured cover, it is your responsibility to decide how much it will cost to rebuild your home. If you underestimate this amount, you may have to pay out of pocket to cover the full rebuild costs. To avoid this, you can opt for a sum-insured policy with extended cover, which provides a ""safety net" of up to 30% additional cover on top of your sum insured.

Total replacement cover removes the risk of underinsurance by covering the market value of rebuilding your home. This means that your insurer will pay the total cost of rebuilding, regardless of your sum insured limit. However, this type of cover may be more expensive and take longer to receive the funds as the insurer will need to complete a thorough assessment of the damage.

To determine the replacement cost of your home, you can use either the cost per square metre method or elemental estimating. The former is a basic method based on the size of the house and the materials used, while the latter is a more comprehensive system that considers various factors such as local wage rates, material costs, the quality of finishes, the nature of the building site, and more.

When choosing between sum-insured and total replacement cover, it is important to consider your specific needs and circumstances. Sum-insured cover may be suitable if you have a good understanding of the cost to rebuild your home and want to save on insurance costs. On the other hand, total replacement cover may be preferable if you want the peace of mind of knowing that you will be able to afford the rebuilding costs, even if they exceed your sum insured limit.

Rebuilding costs

When insuring your house, it's important to consider the rebuilding costs. This is the amount it would cost to rebuild your home from the ground up, including any attached structures like a deck or garage. It's different from the market value of your home, which is how much you could sell it for.

There are two common ways to evaluate home rebuild costs: the cost-per-square-metre method and elemental estimating. The first method estimates an average cost per square metre to rebuild your home, while the second method offers a more detailed assessment by considering factors such as the construction period, quality of materials used, and additional features like bathrooms, garages and security systems.

To accurately calculate the rebuilding costs, you can use a replacement cost calculator or hire an appraiser. Insurance companies typically use their own sophisticated calculators, but you can also find free online calculators that can provide a rough estimate. It's important to review your coverage amounts regularly to ensure they're still accurate, as building costs can fluctuate from year to year due to changes in construction demand, material costs and labour expenses.

When choosing a sum insured for your home insurance, make sure it's enough to cover the rebuilding costs, including any permanent structures on the property such as sheds, carports and fences. You don't want to be underinsured, which means the rebuild costs are higher than what your home is insured for, leaving you to pay the difference. To avoid this, track and calculate the replacement cost of your home regularly and consider adding extended or guaranteed replacement cost coverage to your policy.

Contents insurance

When choosing contents insurance, consider the value of your belongings. Ask yourself what you could afford to replace or lose if something went wrong. Most contents insurance offers the replacement value of your belongings, sometimes called 'new for old' cover. It covers the full cost of replacing your belongings with new ones, which often cost more. Replacement value gives you the best cover, but it is more expensive.

Some policies offer the value of your lost or damaged belongings. This covers what they are worth at the time they are insured. For example, if your fridge is currently valued at $500, you will get $500 from the insurer. It may cost more to buy a new one of similar quality. This value is likely to depreciate each year.

When you claim, insurers may repair or replace the damaged items, or pay you the amount it would cost to repair or replace them. Calculate the value of your belongings by listing all your belongings and working out how much each item would cost to replace (at today's prices). Include as many details as possible, such as serial numbers, receipts, warranties, photos, condition, and the date of purchase.

Most contents insurance does not include cover for accidental damage. It may be worth adding this if you want cover for mishaps, such as staining your couch or smashing a vase. Also, check what isn't covered, for example, damage to clothing or computers.

You may pay a lower premium if you bundle your contents insurance with your home insurance, pay annually, or apply online. You could get a discount if you have deadlocks, fire extinguishers, smoke alarms, or a security system. Some insurers offer extra benefits, including replacing locks and keys after a break-in or covering your belongings when you move house.

Underinsurance

The issue of underinsurance often arises when homeowners do not regularly review their insurance coverage. Over time, the cost of rebuilding a home increases due to factors such as inflation, supply chain issues, building material shortages, and rising labour costs. Therefore, it is crucial for homeowners to update their insurance policies to reflect these changes.

To avoid underinsurance, it is essential to accurately estimate the rebuilding cost of your home and the replacement cost of your belongings. Two common methods for evaluating rebuilding costs are the cost-per-square-metre calculation and elemental estimating. The former provides a quick estimate but may not reflect actual costs, while the latter offers a more detailed assessment by considering factors such as construction period, quality, and additional features.

Additionally, it is important to keep your insurance provider informed about any renovations or upgrades to your home, as these can increase the rebuilding cost. Regularly reviewing and updating your policy ensures that you are adequately covered in the event of a disaster.

By taking proactive measures, such as engaging professionals for estimates, using online calculators, and regularly reviewing and updating your policy, you can minimise the risk of underinsurance and protect yourself from financial losses in the event of a disaster.

Policy exclusions

When choosing home insurance, it is important to understand what the policy covers and what it does not. Here are some common policy exclusions to consider:

Floods and Water Damage:

Home insurance typically does not cover damage caused by natural flooding, water seepage, sewer line backups, or sump pump issues. However, damage from burst pipes or a malfunctioning water heater is usually covered. It's important to note that even if flood coverage is included, certain parts of your house may still be excluded.

Earthquakes and Earth Movement:

Damage caused by earthquakes, landslides, mudslides, sinkholes, and other types of earth movement is generally excluded from standard home insurance policies. If you live in an area prone to earthquakes or landslides, consider purchasing separate earthquake insurance or adding an endorsement to your policy for additional protection.

Mold:

Mold coverage is complicated and depends on the root cause. Standard policies typically do not cover mold resulting from long-term leaks, poor maintenance, or natural flooding. However, sudden and unexpected issues, like burst pipes or appliance malfunctions, may be covered if addressed immediately.

Wear and Tear, Neglect, or Lack of Maintenance:

Home insurance does not cover routine maintenance issues, obvious leaks, or general wear and tear. It is expected that homeowners perform basic maintenance to prevent their property from falling into disrepair.

Pest Infestations:

Damage caused by pests such as termites, bees, bats, bed bugs, or other infestations is typically excluded from coverage. In rare cases, if an infestation causes a section of your house to collapse, it may be covered under the "collapse" portion of your policy's additional coverage.

Power Surges and Power Failure:

Your home insurance policy usually does not cover power surge damage or outages originating from off your property, such as those caused by your utility company. However, if the cause of the power failure occurs on your property, like a short circuit that leads to a fire, it would typically be covered.

Government Action:

Home insurance does not cover damage or loss resulting from government or public authority actions, such as confiscation or seizure of property. The only exception may be if the governmental action is taken to prevent the spread of a fire that could affect your home.

War and Nuclear Hazards:

Any damage caused by acts of war, including declared and undeclared wars, civil wars, or nuclear warfare, is generally excluded from coverage. Additionally, damage from nuclear accidents, nuclear waste leaks, or reactor failures is also not typically covered.

Intentional Loss or Damage:

If you or a family member intentionally damages your property or causes injury to someone else, home insurance will not cover the cost of repairs or legal expenses. This exclusion also applies to intentional neglect or failure to maintain your property.

Home-Based Business Liability:

Standard home insurance policies do not extend personal liability coverage to home-based businesses. Policies may have limited coverage for business property, and trees, plants, or shrubs grown for profit are typically excluded.

Aggressive or Dangerous Dog Breeds:

Certain aggressive or dangerous dog breeds, such as pit bulls, Rottweilers, or wolf hybrids, may be excluded from coverage or make it difficult to obtain a policy. Some companies will consider an individual dog's history of aggression rather than breed alone.

Wind Damage in Hurricane-Prone Areas:

While standard policies cover wind damage in most parts of the US, separate wind insurance may be required in hurricane-prone areas along the Atlantic or Gulf coasts. Additionally, higher deductibles or percentages of your home's insured value may apply in these regions.

Frequently asked questions