Your home is possibly the most valuable (and expensive) thing you’ll own. So it makes sense to protect it with home buildings insurance in case something unexpected happens and your house is damaged or needs rebuilding.
But trying to figure out the level of cover you need can be daunting. So how do you work out the ideal amount and level of cover?
Home insurance explained
Home buildings insurance can cover the cost to repair or rebuild your house up to an agreed amount. Depending on your policy, it can also cover other structures on your property like sheds, garages, fences and in-ground pools.
Home insurance is important because there are lots of scenarios where your house may be damaged. It could be extreme weather such as storms or lightning, fire or water, or even theft or vandalism. Beyond having insurance in place, it’s important to get your level of cover right, so you know your home will be covered for the amount you need.
How much home insurance is enough?
To determine the right level of cover to suit your needs, you’ll need to put a figure on how much you think it would cost to rebuild your house if it was a total loss and consider events your policy covers.
If you’re not sure:
- Talk to your insurance company for guidance
- Use an online calculator to help you estimate total rebuild costs
- Factor in recent renovations or home improvements that have added value to your property
Do your homework - if you need to rebuild and you’re underinsured, you’ll be faced with the task of finding the extra money to pay for the shortfall, which could run to tens of thousands of dollars, or more.
The facts about underinsurance
You’re considered underinsured if there’s a gap between the true cost of rebuilding and the amount you’re covered for under your insurance policy.
A 2015 article on the comparison site Canstar, quotes the Insurance Council of Australia, saying that more than 40% of Australian households fail to correctly assess the value of their home and contents.
To put this in perspective, if your brick veneer home was insured for $210,000 and you were around 30% underinsured, the actual cost of a rebuild would be $300,000. In this case you would need to come up with $90,000 to rebuild your home!
It’s important to understand that if anything happened to your house and you were underinsured, you will need to find the money for the gap. So it’s vital that your insurance is up to date.
Tips to avoid underinsurance
There are a few simple things you need to do when estimating costs to reduce your risk of being underinsured:
- Include costs for demolition, removal of debris and construction
- Consider land features like slopes or difficult access as this can add to costs
- Update your insured amount if you renovate or add new features
Take the time to read your insurer’s Product Disclosure Statement (PDS), at the end of the day it’s your responsibility to know what you are and aren’t covered for.
And finally - review your policy
Once your home insurance is sorted you can sit back and relax, right? Yes – but review your policy regularly to make sure you’re not underinsured. Your home may be adequately covered now, but by this time next year things may have changed. Building costs rise, renovations happen, you might add heating or cooling systems, new carpets or external features like an in-ground pool. Keep your policy handy and update it as needed, so you never get caught out.
Disclaimer: Things you should know: Speak to your Home Insurance provider about any policy limits and exclusions that may apply. NRMA Home Insurance issued by Insurance Australia Limited ABN 11 000 016 722 AFSL 227681 trading as NRMA Insurance. This is general advice only so to see if a product is right for you, always consider your own circumstances and the Product Disclosure Statement available from NRMA Insurance.