Understanding what home insurance you need can be complicated and overwhelming. With all the large insurance companies making big promises and fostering fears of the unexpected, all the information available can be misleading, causing many to be either over-insured or even worse, under-insured or not insured for certain things at all.
Industry standards go by the 80% rule which refers to the fact that most insurance companies will not fully cover the cost of damage to a house due to the occurrence of an insured event (e.g. fire or flood) – that is unless the homeowner has purchased insurance coverage equal to at least 80% of the home’s total replacement value.
Based on this assumption, here are some simple points to be aware of so you can make an informed decision when purchasing your home insurance.
Make Sure Your Cover Is Adequate and Covers All Eventualities
According to recent research, most homeowners are under-insured. The Insurance Council of Australia estimates that more than 40% of households fail to correctly assess the value of their home and contents, nor do they account for what damage unexpected disasters can do to their homes.
Should a disaster occur, the under-insured are left to cover the gap between the insurance pay-out and the costs of repairing the home. There are also additional costs that won’t be covered, such as rental accommodation – something most will need to pay for while the insurance claim is assessed and finalised and rebuilding has commenced (and word to the wise, it’s generally not cheap).
Try to Get Your Policy as Personally Customised as Possible
When assessing your different policy options, make sure the list of items insured within the policy are as specific to you as possible. These days, there are more options than the old “one size fits all” approach of old.
Make sure your insurer understands your situation as clearly as possible and don’t hold anything back, as non-disclosure could come back to bite you if you ever need to claim. Apart from not receiving enough home insurance money to cover the cost of your loss, if you opt for a policy that doesn’t suit your individual circumstances there’s an added risk that can be far greater.
If you have significantly under-insured your home or contents, your insurer may have the right to pay only part of any loss because you’ve insured for just a fraction of what it’s actually worth.
The Over/Under Conundrum
Some homeowners find themselves over-insured on their home and contents as a result of overstating the value of the home when insuring it. This will serve no benefit, as your insurance company will only pay you the actual amount of damage you suffered in a loss.
If you are under-insured, you will achieve similar results. That is, a pay-out much less than you should actually receive.
Know the Different Types of Home Insurance
Another common mistake is for someone renting their home to take out home and contents insurance. In these cases, the landlord has already taken out home or builders’ insurance on the property and therefore anyone renting only needs to insure their contents. Do not be trapped insuring the home you are only renting.
As a final step we recommend using a home insurance calculator, which will help you fully understand what needs to be insured and why. This will guide you through all the categories that need insuring and will help you create a balanced insurance policy specific to your very own home and contents.