Home buildings insurance – an owner’s guide

Your home is possibly the most valuable (and expensive) thing you’ll own - especially if you are in a major city such as Sydney, Brisbane, Perth, Adelaide or Canberra. 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 how do you work out the ideal amount and level of cover?

What is building insurance?

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 garages, fences and in-ground pools.

Your house could be damaged in multiple scenarios, such as extreme weather, 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, or you can also use an online calculator to help you estimate total rebuild costs. It’s important to also 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 into 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.

Underinsurance can occur with any type of insurance, but it is believed to be more common with home and contents. A recent survey conducted for the Insurance Council of Australia found 83 per cent of households believe they may be underinsured when it comes to home and contents insurance.

To put this in perspective, if your brick veneer home was insured for $210,000 and you were around 30 per cent 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) because ultimately, 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 relax, right? Yes – but review your policy regularly to make sure you’re not underinsured, and your cover hasn’t changed. Keep your policy handy and update it as needed, especially if you renovate or add features to your home, so you never get caught out.