Guest Post – What does home insurance cover?
I often get requests from people and organisations seeking to make a guest post on my site. Unless it is meaningful and is not a straight product flog I will certainly share and embrace their articles. (You would be staggered how many requests I get from gambling sites).
This guest post is from Alex at Lendi.com.au.
What does home insurance cover?
The Wye River bushfires that took place in 2015 on Christmas Day destroyed over a hundred homes, with The Insurance Council of Australia at the time estimating total losses to be worth $38 million.
Property losses were significant, and while government grants were given out to those who were unable to return to their home, $1,300 would not have made much of a difference to the many homeowners that turned out to be underinsured.
According to data from RACV Home Insurance, 65% of the members who had their homes destroyed by the fires were underinsured, some by over $100,000. This is an alarming reminder of the importance of understanding your home insurance policy and what it does and doesn’t cover.
Home insurance and contents insurance
So, what does home insurance cover ? Well, there’s a reason it’s also referred to as building insurance. Most policies do not protect your personal belongings, but rather cover the cost of repairing or rebuilding the actual building structure itself, including any outer buildings, garages, and permanent features within the home, such as light or a built-in wardrobe.
It provides you with financial protection against external events that are out of your control, such as natural disasters including fire damage, hail, and wind, or man-made damages including vandalism, arson, and theft.
However, you should be aware that most policies do not cover particular events such as earthquakes and floods. If you live in an area where these events are more likely to occur, then you may need to take a closer look at your policy options.
If you want your personal belongings covered in case they are damaged, lost, or stolen, then you would need contents insurance. This covers personal possessions in your home such as electrical equipment, clothes, furniture, tools, and jewellery. Many homeowners bundle their home insurance policy with contents insurance into a combined policy so that way everything is covered.
As for home insurance policies, there are two different types to choose from:
Total replacement cover
Total replacement cover is a type of home insurance that, as the name suggests, covers the cost of rebuilding your property to the state it was in prior to being damaged. This is the best option if you want to reduce the risk of being underinsured.
However, only a few insurers currently offer total replacement policies, and you may find that it takes some time to receive the funds if you are to suffer a total loss, as a full assessment will need to be carried out by the insurer to calculate the cost of rebuilding the property.
A sum-insured cover is the more common home insurance option and will only cover you up to a set amount to rebuild or repair your property. The set amount is selected by you and often referred to as ‘the sum insured.’
Since you can only receive up to a set amount, there is a higher risk that you will be underinsured, as most people do not have the expertise required to accurately work out how much it would cost to rebuild their home.
It should also be noted that limits, caps, exclusions, and other conditions vary between insurers, so when you are choosing a policy be sure to ask questions and carefully read the product disclosure statement. Take your time to shop around, so you find the best cover for your needs.
Homeowners that do not fully understand their insurance policies could end up finding themselves to be underinsured at the time disaster strikes. Be sure to do your research and read over the fine print. You don’t want to end up losing your home because of a natural disaster, only to find that you won’t be able to afford the repairs.
As well as taking the time to understand your insurance cover, you should also make a point of regularly reviewing your policy, as over time life circumstances can change, along with your possessions and your home.
Think back over the last year before you blindly renew your policy. You would be surprised at how many homeowners forget to mention an expensive home renovation to their insurance providers. Failure to do so could leave you at risk of not being adequately covered, so it’s worth taking the time to review your policy on a regular basis.
Thank you for sharing Alex.
I would support the position that with some no sum insured policies the time taken to finalise the claim in the event of a total loss can be much longer to agree than with a sum insured policy. I ended up working with around 12 such people following the Wye River fires being engaged around 12 months after the fires. Most disagreements were over the amount of reinstatement. It is therefore important to use both LMI PolicyComparison.com and LMI ClaimsComparison.com to compare the features and benefits and also the claims service as part of your decision making process.