2020 has been a whirlwind of natural disasters … from unprecedented bush fires, to hail the size of tennis balls, torrential rains and raging floods. These natural disasters are not only devastating families and destroying homes but are forcing people to ask the gut-wrenching question; “are we covered by our insurance?”
While this is in part due to an affordability issue in New South Wales, an issue which the ICA are continuously advocating to alleviate, home insurance is now more than ever proving to be a critical cost. So, instead of avoiding insurance altogether, the most cost-effective thing you can do is make sure you have the right policy. Here’s how to do it…
Identify the Risks
Whether you are purchasing a new home or looking to update your current policy, a good place to start is to understand the risks in your local area and ensure your policy adequately covers you for these risks. Aside from the more common risks of flood or bushfire, you may be in an area subject to mine subsidence or require a higher level of cover if your property is heritage listed.
If you are purchasing a new home, the contract of sale will include information on how the land is classified and which risks are likely to pertain to the land. Make sure you identify these risks and purchase a policy which will cover you in these events. This will also assist in ensuring you are not over-insured for damage that is highly unlikely to occur.
Further, it is always prudent to have your insurance policy kick in from the date you exchange contracts. Should the property be destroyed or damaged between exchange and settlement, and the Vendor is not able to make good this damage, you may want the option to settle the purchase and rebuild yourself.
If you already own your home, you should make enquiries with your local council or emergency management authorities to identify the current risks in your local area and adjust your insurance accordingly.
Ensure the sum insured is accurate
When purchasing a policy, you will need to nominate a maximum amount you wish to be covered for should you wish to make a claim. It is a good idea to ensure this amount is sufficient to cover the cost of rebuilding, as opposed to simply being the value of the home. The ICA provide building and contents insurance calculators which can assist you in nominating a sum. However, you should also speak to a builder to get an idea of what it will cost to rebuild your home using current market rates and taking into account compliance with current building codes.
You should also revisit the sum insured at least each time the policy is renewed…and don’t forget to factor in any renovations or improvements to your home.
Insure your contents
This is relevant for those who are renting as well as homeowners. It is a good idea to keep an inventory of your contents by undertaking a room-by-room evaluation. Most policies will have a limit on the number of possessions you can insure, so listing your belongings which would cost the most to replace (at current market rates), is best practice.
If you already have a policy in place, make sure you have a thorough understanding of it. Read through the policy carefully and follow up with your insurer if there is any part of the policy you do not understand. Not every provider will be able to offer the same level of cover or the same additional benefits, so shop around and find a policy best suited to your needs.
Please feel free to contact our office if you have any questions in relation to this article.