HOME INSURANCE: What you don’t know could ruin youTips and Advice
There’s been a lot of talk lately about home insurance as a result of the fires, floods and hailstorms that have occurred in the past few months.
I often come across people who are either underinsured or have no insurance on their homes at all.
Now I get that home and contents insurance is expensive. But you know what’s more expensive? Having no insurance at all and then something goes wrong.
So, I decided to consult with a friend of mine who’s an insurance specialist about their experiences when it comes to people and their home insurance. They were happy to talk candidly with me, providing I didn’t mention their name or the company they worked for.
Why people don’t have insurance
From our combined experience there are 3 main reasons why people don’t have insurance on their homes.
The first is that they stupidly believe their homes are safe. They live on an elevated block, or well away from bushland so they feel safe from bushfires. But people who have these beliefs are kidding themselves. A major cause of home loss are fires that start INSIDE the home. Flooding can affect homes on elevated blocks, just like it did in Toowoomba in 2011.
The second reason happens when people pay off their mortgage. Your mortgage agreement will stipulate that you must have insurance on your building. But once people have paid their home off, they will sometimes let their insurance slip. But just because you don’t ‘have’ to, doesn’t mean you shouldn’t.
Finally, people often simply forget to renew their insurance. They either don’t open their renewal notice, or they open it, but get distracted and forget to pay. There have been plenty of heartbreaking cases where people’s homes have been destroyed only for them to find that they forgot to pay their insurance.
Risk of not having insurance
Your home is a considerable investment. Choosing not to have it insured is an enormous risk.
Nobody ever expects their home to burn down, yet plenty do. And with changing weather patterns, homes that haven’t previously seen severe storms could suddenly be impacted. Whilst we hope that nothing will ever happen to our homes, the reality is it can happen at any time.
If you don’t have insurance on your home and it’s damaged in an event, what are you going to do? How much is it going to cost to replace your home? How are you going to start again, having lost everything that you’ve saved and worked for over the years?
And it’s not just damage to the building that needs to be considered. Most home and contents insurance policies offer legal liability cover. Legal liability cover offers protection if someone tries to sue you. So, if someone trips and breaks their leg entering your home, legal liability can come into play.
But whilst having no insurance is thankfully rare, being under-insured is unfortunately quite common.
Being under-insured is a massive problem. The ABC recently wrote an article about the ‘national crisis of underinsurance’. It’s well worth a read.
Insurance companies will often set a minimum amount that you can ensure your home for. But how accurate are their minimums? Could you actually rebuild your home for that amount?
The Insurance Council of Australia is the governing body of insurance in Australia. Campbell Fuller from the Insurance Council is quoted as saying “about 80 per cent of insured property owners are probably under-insured”.
Yet many people feel the insurance companies estimated rebuild cost is too high. They believe they are over-insuring their homes and paying too much in premiums as a result.
But you need to keep in mind that even though you could get a house built cheaper, chances are you can’t get YOUR home rebuilt for that.
You see, insurance companies don’t go to the ‘off the plans’, mass-producing home builders. Your building insurance covers you for what it will cost to rebuild your home to the same specifications it is right now. So, it’s a custom rebuild.
On top of that, there are demolition and removal costs, architect fees, development applications, etc. Burning homes can produce toxic waste. These get into the soil. The topsoil becomes contaminated and therefore must be removed before any new construction can start. These costs can all add up, which is why rebuilding can be so expensive.
Calculating your rebuild costs
So how can you work out what it would cost to rebuild your home?
Well, there are several online building insurance calculators. Cordell Sum Sure on the Understand Insurance website is a popular one. But most insurance companies offer them. However, disturbingly, the difference in estimated rebuild prices between each one can be staggering.
So how can you be sure?
Well if you really want an accurate figure you can always engage us to give you a rebuild cost appraisal. If you are considering a renovation or thinking about building, we can do this as part of that service. This will give you a much more accurate figure than any generic online calculator.
Not all insurance companies are created equal, you get what you pay for
There are cheap insurers out there and there is normally a reason why they are cheap. To think that you’re paying hundreds of dollars less but getting the same coverage with the cheaper insurer is obviously naïve.
There are plenty of stories of people who have paid insurance for years only to find that their insurer fights tooth and nail to avoid paying out at claim time. One particular insurer who seems to have a bad reputation in this area asks plenty of questions, not to tailor your insurance, but seemingly to create loopholes to get out of paying. Read through the Product Disclosure Statements and know what you are and are not getting and then do some online research. Bad companies have plenty of bad reviews.
Keeping the cost of insurance down
There’s no doubt insurance is expensive. But having NO insurance is a massive risk. One that could ruin you financially.
So, I asked my insurance specialist friend for their suggestions. And for them, top of the list is your excess.
Your excess is the amount you need to pay before the insurer will process your claim. The higher your excess, the lower your premium. Why? Well, insurance companies reward people for not making claims all the time. If you have a $5,000 excess on your home, chances are you’re not going to be trying to claim for little things like a broken window. You’re now only going to be claiming on more major events.
So, by increasing your excess, you could potentially save thousands on your premium over several years. Of course, if you do need to make a claim you will need to come up with your excess. But isn’t it better to try to save up $5,000 to pay your excess after an event, than try to save up hundreds of thousands to rebuild your home?
Some insurance companies offer discounts when you bundle your insurances together, so it’s worth asking the question. And if you haven’t spoken to your insurer in person in a while give them a call. Ask them to help you find ways to lower your premiums. You’ll find the better ones are only to happy to help you find a way to reduce your fees.
Finally, make sure you’re correctly insured. If you don’t know how much it would cost to rebuild your home you can always call us, and we could even talk about any additional needs at the same time. But the main thing is KEEP YOUR INSURANCE UP TO DATE!
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DION SEMINARA, DION SEMINARA ARCHITECTURE
Hi, I am Dion Seminara, practicing architect and licensed general builder for 20 years as well as an environmental sustainable design (ESD) expert. I graduated from Queensland University of Technology (QUT) with honours, QLD in 1989. Registered as an architect in 1991 and registered as a builder in 1992, I am also a fellow member of the Australian Institute of Architects (AIA). Having received 12 ArCHdes Residential Architecture Awards, LJ Hooker Flood Free Home Design Award and the 2016 AIA Regional Commendation for Public Architecture, my expertise with both residential renovation (to all types of houses, especially Queenslanders, 50s/60s/80s), new contemporary homes and luxury residences has earned me a reputation as one of Brisbane's architectural specialists in lifestyle design architecture, interior design and landscape design.