If you’re having difficulty finding the right home insurance policy, or are not sure what you’re covered for, you’re not alone.
According to a recent study by Finder involving 582 participants, 1 in 4 home insurance customers don’t know what their policy includes.
Nobody wants to trawl through an insurer’s product disclosure statement, but a clear understanding of what you’re covered for could save you thousands or even hundreds of thousands of dollars if disaster strikes.
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What type of home insurance do I need?
When you take out home insurance, you usually have 3 options:
- Building insurance
Building insurance, sometimes just called home insurance, covers the building itself and any built-in fixtures – for example, pipes, cables and the plumbing system.
If you own a home and have a mortgage, your bank will often require you to take out building insurance. Renters don’t need to worry about building insurance though; this is the landlord’s responsibility. Property owners can get building cover with landlord insurance.
- Contents insurance
Contents insurance is for homeowners and renters. It covers all of the belongings you keep at the property – for example, your furniture, appliances, laptops and clothes – if they’re damaged or destroyed.
- Home and contents insurance
As the name implies, this covers your home (building) and the contents inside it. If you want to protect both your property and possessions, this is probably the best insurance option for you.
What should my home insurance cover?
Home insurance covers your building and contents from what’s called insured events. This can include fires, storms, theft and impact damage – for example, a fallen tree.
The majority of providers cover the same insured events, but there are a few important exceptions. For example, not all insurers automatically cover floods, motor burnout or accidental damage.
If you live in a flood-prone area – or an accident-prone house – it might be worth paying a little extra per month to get these events included in your policy.
Check what benefits are included in your policy
Benefits are a little different. These are the features your home insurer can pay you for if an insured event occurs.
For example, if a fire (insured event) destroys your home, many providers will cover you for temporary accommodation while it’s being rebuilt.
While most insurers offer quite similar benefits, there are a couple worth calling out.
Temporary accommodation is one of them. Without it, you could be forced to pay rent while your home is uninhabitable and being rebuilt.
Angelo Azar, chief operating officer at Honey Insurance, recommends checking you’re covered for debris removal and demolition costs.
“Many people are unaware of how much it can cost to remove debris,” said Azar.
“Let’s say your home is insured for $500,000. Today, there are insurance policies where part of the $500,000 will go towards demolishing your existing home, removing the rubbish and all the debris that’s left behind.
“That process can cost up to $100,000, significantly eating into your rebuilding costs,” added Azar.
How much do I insure my home for?
When you take out home insurance, you generally need to select a sum insured. This is an estimate of how much it would cost to rebuild your home if it was completely destroyed.
In most cases, with the help of online calculators, you need to work this out yourself.
However, this method can easily lead to underinsurance. For example, say you select a sum insured of $800,000 but it costs $1 million to rebuild your home – you would be $200,000 out of pocket.
Similarly, if you ever renovate your home and increase its value but don’t increase your sum insured, you might not be adequately covered if something happens.
Luckily, you have options:
- Sum insured safeguard. This is a “safety net” that can provide up to an additional 30% of cover on top of your sum insured.
- Total replacement cover. This covers the market value of rebuilding your home, so you’re unlikely to have any out-of-pocket expenses – though it will likely cost you more.
Look for a better price by comparing quotes
Now that you have a clearer idea of what you’re looking for, it’s worth shopping around for a policy.
Comparison sites like Finder can be helpful because they let you compare policies side by side. Answer some questions about your home, request a few quotes and compare. It could save you hundreds or even thousands of dollars per year.
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