Step 1: Bricks and mortar
When it comes to your home, there are two main types of insurance: building insurance and home contents insurance.
Building insurance covers the bricks and mortar. If there's a fire, for example, and your house is damaged – or even gutted – a building insurance payout will help you repair and rebuild.
What you're covering is the cost of restoring your property to its original condition.
That means choosing your level of cover isn't as simple as nominating the current market value of your home, or its value minus the land value on your latest rates notice.
In the worst-case scenario, your policy needs to be able to meet costs such as clearing the site, removing debris, engaging an architect, alternative accommodation and the actual costs of building. And those costs bear little relation to what your house might sell for if you put it on the market tomorrow.
In determining the right level of cover, check the cost of rebuilding with a builder or professional valuer and seek advice from your insurer or insurance broker.
Many insurers have online calculators to help you do the sums, but favour ones that ask lots of specific questions about your property. Some calculators take shortcuts and come up with averages that may fall well short of what you really need.
Underestimate the cost of rebuilding your home and it could come back to haunt you. If your property is insured for $150,000 but costs $200,000 to rebuild, the insurer will only pay out the $150,000.
Some may even apply "averaging" – if you've covered only 80 per cent of the value of the property, it may pay only 80 per cent of the value of a damage claim.
Remember to review your cover regularly, because building costs change. Also take another look at your cover after any renovations.
Often, mortgage lenders will insist you have building insurance, to protect their interest in the property as security against the loan.
If you're in a strata title unit, the body corporate will need building insurance. If you're not confident it has sufficient cover, there are policies around that provide top-up cover.
When choosing a policy, balance the cost of the premium against what's covered: one policy might seem cheaper but it might have quite strict rules, making it hard to claim for things such as stormwater damage, or it might have a long list of "exclusions" – things it doesn't cover at all.
Then again, you don't want a high premium to force you to cut back on the extent of your cover. Buy the most cover you can at the best price, as long as the cover is not too narrow and the insurer has good reputation for paying claims.
Individual policies vary greatly in what they cover, and the terms of that cover. Check to see whether the policy includes:
- Accidental damage, rather than just "defined events"
- Smoke damage
- Property while it's unoccupied
- Property that's being renovated
- Malicious damage
- Impact by something such as a car
- Replacement locks if you lose your keys
- Earthquake damage
- Flood damage.
While insurers may cover you for garden equipment, most won't pay out on plants, trees and shrubs. If your plants are in pots, they may come under your home and contents policy, but the moment you transplant them into your garden they're no longer covered.
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This fact sheet is intended to be general information about the law in Australia. It is not a substitute for legal or other professional advice. Lawscape Communications Pty Ltd and Fairfax Digital Ltd do not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet. Last Updated - October 2005