06.Guide to buying home and contents insurance
The first step to buying home and contents insurance is to work out how much it would cost to replace your home and contents, called the sum insured (SI). There are a number of calculators online to help you do this, and you should start by using your own insurer’s calculator (some insurers even require you to use their calculator to qualify for full cover). If your insurer doesn’t have a calculator, you can easily find one by searching online.
If you over-insure, insurance companies won’t pay above the value of repairs or replacement. However, underinsurance is a far bigger problem, so make sure you calculate your costs adequately. It’s also worth checking what specifically is covered under home and what is covered under contents, especially if you are purchasing either home or contents insurance separately (for example, carpets may be covered under contents insurance).
As it can be difficult to calculate the total cost of replacement, it helps to choose an insurer with underinsurance protection. Some insurers will specify an amount on top of the sum insured that they will pay for additional costs. Other insurers include specified events like removing debris and temporary accommodation as a benefit on top of the sum insured. If they don’t include adequate cover on top of sum insured for these items, you will need to increase your estimate.
Go through every room of your home and estimate how much it would cost to replace each item. Include everything, such as commonly overlooked items like crockery and cutlery, bed linen, books, CDs, clothing and footwear. It’s a good idea to take clear, close-up photos, and be sure to store any relevant receipts or proof of purchase.
Contents policies usually set a limit for valuable items, such as up to $1000 per item and up to $5000 in total for jewellery. If you have items that exceed the limits provided, you need to list them separately with your insurer. If you choose not to do this, you won’t be able to claim any higher than the standard sub-limit regardless of how much your valuables are worth.
What type of policy?
You will need to decide whether you want defined events cover (standard level of cover) or accidental damage (higher level of cover). Sometimes, both options are available on a particular policy. If this is the case, you should be given the option when completing your insurance quote.
- Defined events policies cover you against specific events.
- Accidental damage policies cover those events plus any other mishaps.
You will still need to read your policy in full, but it should help you get a better understanding of what your policy covers.
Optional and additional benefits
Some policies don’t include full coverage but allow you to buy extra cover for an additional amount. The most common optional covers include:
- Burnout of electric motors (fusion)
- Domestic workers’ compensation
- Pet cover
- Variable excess (increasing this will lower your premium, just remember you will need to pay it in the event of a claim. A higher excess makes small claims less valuable.)
Check the details
Make sure you always read the full policy document and are clear about what you’re covered for. What you believe is covered in one section of the document may be explicitly excluded in another section. For example, fire damage is usually only paid for if there is a flame, so if your iron scorches your shirt or a hot pot scorches the benchtop, you may not be covered.
There are many reasons an insurer can refuse to pay up, even when you have a legitimate claim. They might refuse your claim because your monthly premium is overdue or because the event in question took place when your home was unoccupied for a period (such as 60 days) and you didn’t notify them you were away.
Also be aware that new Commonwealth laws against unfair contract terms in standard contracts do not apply to insurance policies. This is a major hole in the legislation and CHOICE is working to have the gap filled out. In the meantime, be vigilant in checking the details.
Aim to get at least three quotes not including your renewal slip (check this online with your existing insurer to make sure you’re getting a good deal). It may also be worthwhile getting a quote from an insurance broker. Once you have this, negotiate with your preferred provider and see if they will price match or at least give you a better deal. While it can be annoying, you should do this every year to ensure you’re getting the right product and a good price.