A Homeowner’s Guide to Insurance
Whether you’re looking to insure your first house or your fifth, it’s always wise to do some research before you commit to a particular insurer and type of policy. Whether you call it ‘due diligence’ or just being plain savvy, getting some basic information on board before you start shopping around can ensure you get cover that truly suits your situation.
House insurance isn’t a luxury. It’s a necessity, particularly if you have a home loan and are conscious of your retirement.All home lenders require you to have cover in place, usually based on the purchase price or registered valuation of the property.
If the house you need to insure is a rental property, a specific type of cover may be required. You also need to make sure your tenants have cover too.
What does house insurance do?
House insurance, aka homeowners insurance, generally covers destruction of or damage to a home’s interior and exterior, as well as other assets that are considered part of the property, like fixed floor coverings. It may also protect you against financial liability if someone gets hurt while on your property.
In the USA and Canada, homeowners insurance also covers the home’s contents, i.e. furniture, artworks appliances, floor rugs, kitchen things, clothing and so on. In other English-speaking countries, insurance for the house is sometimes separated from insurance for contents. The contents component of a house insurance policy will generally cover destruction, loss or theft of possessions.
What type of cover to get?
Before you start requesting quotes for cover, you need to think about the type of cover you want. One of the options is ‘actual cash value’, also known as ‘market value’. This refers to an amount equal to the replacement cost of the home and/or contents, minus depreciation at the time of loss.
Another option is ‘replacement value’. This means a claim will cover the cost of restoring items to their original condition or buying new items of the same quality as the ones lost, whichever is the lesser amount. There is no deduction for depreciation.
A third option is ‘extended replacement cost/value’. This means you are reimbursed for a certain percentage over your policy limit. This is typically between 10 and 25%. This, understandably, is the most expensive type of cover.
How much will your cover cost?
The cost of your cover will depend on whether you choose actual cash value, replacement value or extended replacement value. Your insurer will also look at your past claim history; the neighbourhood and it’s crime stats; weather and geography risks associated with where you live; and the home’s general condition. If you have a recent building report, you can submit it to the insurance company for consideration.
How many quotes should you get?
When shopping for house cover or homeowner’s policy, get quotes from at least four companies. If you already have a relationship with an insurer, they might offer you a multi-policy discount. However, don’t assume they will always offer you the best deal. It’s wise to shop around and talk to any newcomers on the local insurance scene.
How homeowners cover works
Homeowners cover looks at all the risks that could lead to destruction or damage of your property. By this we mean:
- Fire – damage or loss caused by fire is the primary reason people get homeowners’ insurance. Most policies don’t differentiate between fires that start inside the house and wildfires that start outside the house, but read the fine print.
- Lightning strike – damage caused by lightning is covered by almost all homeowners’ insurance policies.
- Vandalism – most homeowners insurance covers vandalism, from broken windows and smashed up letterboxes to destroying your lawn or setting fire to your house.
- Hurricanes – most standard policies cover damage caused by hurricanes, except flood damage.
- Floods – flood insurance isn’t usually covered by standard policies. If the property you want to insure is in a flood-prone area, you will need extra cover.
- Earthquakes – standard homeowners’ policies don’t always cover destruction or damage caused by earthquakes. If your property is located in an earthquake zone, you might need specific earthquake cover.
- Poor home maintenance – this isn’t usually covered by a standard policy. If you want to be insured for damage or destruction caused by lack of maintenance, you’ll have to ask for it to be included and pay more for your cover.
How contents cover works
Whether cover for your home’s contents is included in your homeowners’ policy or separate, it focuses on a variety of risks that are additional to those mentioned above. For example:
- Loss – losing possessions when you’re out and about, such as leaving your phone on a bench at the gym or losing a valuable earring when you’re at a party.
- Accidental damage – such as that caused by pets, spills or clumsiness (dropping the TV when moving it!). The important thing here is the word ‘accidental’; this type of risk is not about general wear and tear.
- Theft – while it’s pretty much impossible to steal a house, having your stuff stolen during a burglary is a common occurrence.
With most contents cover, there are cover limits for valuable possessions, particularly artworks, antiques, jewelry and designer clothing. If you want full cover for certain expensive items, you may need to specify them in your policy and provide valuations.
Make sure you’re covered for personal liability
If you live in a country where you can be sued if something you own causes death or injury to another person, personal liability cover is a must. For example, if your dog bites a visitor, you need an insurance policy that will pay their medical expenses. And if a tree on your property falls down and smashes your neighbour’s car, you need cover that will pay the cost of repairs or replacement.
If in doubt, consult a broker
If wading through the world of insurance makes you uncomfortable, find an insurance broker who sells policies from a variety of respectable insurance companies. Brokers are great at explaining cover in plain English and helping you to make a choice you’re comfortable with.