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Home Building Insurance
Home or building insurance is an absolute must if you own your own property – whether it is a house or a unit. But how do you know what to look for when it comes to looking for insurance? We’ve put together a handy guide.
What is Home/Building Insurance?
Building insurance covers the actual structure of your home, whereas home contents insurance covers what is actually in your home, such as the furniture and so forth. Building insurance protects you against damage to the actual home, such as that caused by fire, and helps you with the costs of rebuilding or repairing. Essentially, the insurance covers the cost of restoring your home to its original condition if it should become damaged in any way.
Selecting the Right Home/Building Insurance
When selecting a level of insurance, be aware that it may not be as simple as choosing to cover for the current market value of your home, or the value of your home minus the land value. You may have to cover such things as clearing the site, hiring architects, alternative accommodation while your house is being rebuilt, and the actual building costs. These costs may not resemble the price that your house would sell for if you put it on the market – in some cases they may be higher, in others, lower.
Choosing the right level of cover can be done in a couple of ways. You can opt to use one of the many online calculators provided by insurance companies but be aware that many of these ask generalised questions, which can result in a recommended level of cover that’s actually lower than what you need. Choose a calculator that asks specific questions. You can also check with a builder or professional valuer to find out what the costs of rebuilding may be. Once you have checked with one of these, you can then talk with an insurer or insurance broker.
It is important that you do not underestimate the cost of rebuilding your home. For example, if you are insured for $100,000 and it costs $150,000 to rebuild or repair, the insurance company will only pay $100,000. Some companies will apply something known as “averaging”. That is, if you have only covered 80 percent of the value of your property, they will only pay 80 percent of the claim. Also remember to review your level of cover regularly as building costs change over time, and also after you have undertaken any renovations.
Remember to balance the cost of the premium against the things that the insurance policy covers. Cheaper policies may have stricter claim rules, making it more complicated to claim for damages, or have a list of exclusions, that is, things that are not covered at all. However, that does not mean that you have to buy the most expensive cover. Buy as much as you can afford, as long as the cover is not too narrow and the insurer has a good reputation.
What Should Home/Building Insurance Cover?
Things that should be covered include:
- the replacement of your home, whether that is by repairing or rebuilding it to its former state up to the sum that it is insured for
- breakage of glass in doors, windows, and skylights
- the cost of temporary accommodation if required
- the cost of removing debris, employing architects and engineers to repair the damage or rebuild
- up to $10 million liability cover if you are found legally liable for someone’s injury or for damage to their property that occurs in your home or on the site
- landscaping costs
Types of Home/Building Insurance Policies
The types of building policies available in Australia include:
- Sum insured policy – this is the most common type of policy and under this policy, you nominate the sum insured and the insurer agrees to pay any costs up to this figure.
- Total replacement policy – this type of policy covers the total cost of rebuilding your home and under this policy, the insurer agrees to rebuild your home to its current standard and quality, with no agreed maximum figure. The premium is based upon what the insurer believes it will cost to rebuild your home.
- Extended replacement policy – this type of policy allows the insurer to pay up to a certain percentage over the sum insured if necessary in order to meet the cost of rebuilding the home. Typically, the additional amount will range from 20 – 50 percent.
- Indemnity policy – with this type of policy, the insurer will only pay the depreciated value of your house. That is, instead of paying for the new materials to rebuild the home, it will only pay the amount equivalent to the current state of the home.
- Combined sum insured policy and indemnity policy – these policies pay different amounts depending on if you decide to rebuild the home or not. The insurer will pay the sum insured if you rebuild the house or pay you a lower amount based on the indemnity value of your home if you sell your home and move.
Loans and Home/Building Insurance
Most mortgage lenders will insist that you have building insurance in order to protect their interests in the property. This is held as security against the loan that they are giving you. If you live in a unit that is covered by strata, the body corporate will require building insurance. If you do not feel that the strata’s level of insurance is sufficient, there are policies available to provide top up cover.
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