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 Helpful advice from ASIC on the right home & contents insurance Protect your home
Your home is your pride and joy. It's a place to feel safe and
secure. Choosing the right insurance for your home and your
possessions will give you an added sense of security and lessen the
pain and cost of repairing your home and replacing stolen or
damaged goods.
Home insurance covers costs associated with loss or damage to
the building you own. Contents insurance covers costs associated
with loss or damage to your possessions. These are often bundled
together as a 'home and contents insurance' package. Keep in mind
that they are separate and work out what cover you need.
Home insurance
Home insurance helps protect you against things that are out of
your control, such as damage from natural disasters like storms and
bushfires.
Home insurance covers the cost of replacing or repairing your
home, including fixtures (i.e. the building and fittings such as
lights).
Choosing home insurance
Almost all home owners need home insurance and are required to
have it as part of their home loan arrangements. Could you afford
to rebuild your home if it was destroyed?
You need to work out if you want 'total replacement' cover or
'sum-insured' cover. Total replacement cover includes all the costs
to rebuild your home to the standard it was prior to an event.
Sum-insured cover is more common and will cover you up to a set
amount. There are a number of variations to these two basic models,
so read the fine print and ask as many questions as possible when
comparing insurers.
Most insurers offer home and contents insurance as a package.
Always shop around for the right level of cover at the best price.
It's as simple as phoning three insurance companies or visiting
three websites.
When you visit insurance companies' websites, use their
estimators or calculators to see how much cover you need. But be
careful as these online calculators can vary from company to
company, so try at least three before making a decision. Keep in
mind that the best calculators ask the most questions.
Get enough home insurance
If you ever need to rebuild your house, you not only have to pay
the costs of labour and materials but will also be faced with a
range of extra or 'supplementary' costs including paying for:
- Alternative accommodation while your house is rebuilt
- Removal of debris from the site
- Architects or other professionals to draw up plans
- Services to make your property safe for workers
- Lodging plans with your local council
Depending on the circumstances, these costs can really add up
quickly. For example, some people who lost their homes in the
Canberra bushfires of 2003 were out of their homes for more than 12
months waiting for their houses to be rebuilt.
Smart tip
Find out if supplementary costs are paid from the sum insured
or from on top of that amount.
Insurers cover supplementary costs in three ways:
- The costs are included in the figure nominated for the sum
insured
- The costs are paid in addition to the sum insured
- A combination of these approaches
See home insurance
supplementary costs for more information when selecting a home
insurance policy.
Contents insurance
Contents insurance covers the cost of replacing or repairing
your unfixed household items and possessions. This includes
furniture, clothes, appliances and jewellery.
When working out how much home and contents insurance you need,
start by listing all your belongings and working out how much it
would cost to replace them. Taking photos and doing it room by room
is sensible because you may be surprised by how much you have.
Choosing contents insurance
The type of cover you choose will affect the premium you pay. Some
policies cover you for defined events (e.g. burglary and fire)
while others cover you for any accidental event. Others give you
only limited cover if you take an item (e.g. a laptop) outside your
home.
There are two main types of contents insurance:
- Policies that cover the value of your stuff
- Policies that replace your stuff with new items e.g. 'new for
old'
'New for old' policies tend to be more expensive. Work out what
type of cover you want and weigh up the costs.
You can save money on contents insurance by choosing a higher excess. For example, if
you could pay the first $1,000 of any loss, the insurance premium
will be cheaper.
Case study: Alina and Daniel are burgled
Alina and Daniel moved into a small apartment near the city. They decided to get contents
insurance even though their building had a security system.
Two months later their apartment was burgled. They lost their
laptop and some DVDs. Alina was very upset but glad they took the
time to get the right cover. Her laptop was replaced and she was
compensated for the stolen DVDs.
Contents insurance for your 'collections'
Most home contents polices ask you to declare 'collections'
separately. A collection can be DVDs, stamps or anything else – ask
your insurer what can be identified.
If you don't declare your collections, then you may not be able
to claim the full amount of your loss if your CDs or DVDs get
stolen or damaged.
Most insurers provide limited cover for valuables such as
jewellery. You may need extra cover to adequately insure all your
valuables.
Be honest with your insurer
Smart tip
Many insurers won't cover events which occur if your home is
unoccupied for more than 60 days. Check what your policy says.
You must 'tell it like it is':
- When you buy or renew a policy
- If you make a claim
- If your circumstances change
You should also ensure your home is properly maintained. For
example, some insurers insist you have deadlocks on your doors and
windows. Or you could install an alarm. Failing to meet the
requirements of your insurance policy may mean any claim you make
gets denied.
Don't be tempted to add fictitious items to your list of lost or
damaged goods. If you get caught, there could be serious legal
implications.
Making a claim
- Tell your insurer of any damage or loss immediately. This can
often be done by phone. Sometimes you will be asked to complete a
claim form.
- Tell the truth. Include as many details as possible of the
incident, even if they are personally embarrassing.
- Keep and provide all documents supporting your claim.
- Cooperate with your insurer and the people they employ to help
assess the claim, such as investigators.
Choosing the right home and contents insurance
can give you peace of mind. By researching your options thoroughly,
you can protect your most precious asset: your home.
Related links
This article reproduced with permission of ASIC. Source: MoneySmart website, http://www.moneysmart.gov.au, 28 April 2011'
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Feature: Home & Contents Insurance