How much should I insure my house for?

Home insurance, also known as building insurance or home building insurance, covers the actual structure of your property. If your house becomes damaged or needs rebuilding, your insurance can cover the building costs involved, provided you’ve insured your home appropriately.

Your home insurance policy may cover:

• The physical structure of your home
• In-ground swimming pool
• Your driveway and garage
• The fencing around the property
• Your roof.

Read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) to understand the specific inclusions and exclusions of a policy and whether it might suit your needs.

It could be useful to use a contents insurance calculator to estimate the replacement value of your contents. Before getting a contents insurance policy, consider all of your personal belongings, even things that might not be immediately obvious such as:

• Carpets
• Electronic equipment
• Kitchen appliances
• Clothes
• Jewellery
• Art
• Musical instruments
• Books and hobby equipment.

It’s also important to value any contents you keep outdoors, such as:

• Outdoor furniture
• Barbeques
• Gardening equipment
• Free standing pools or spas
• Bicycles
• Power tools
• Lawn mowers.

By properly identifying how much your contents are worth, you can be comfortable with the insured amount. Expensive personal effects may need to be listed as specified items on your contents cover if they’re worth more than the standard policy limit. Read the PDS to learn more about what’s included in your policy.

This is a combined policy that covers both your home and all of your belongings. Combined policies may be cheaper than purchasing home and contents cover separately. Individual cover may vary between insurers, so when comparing home and contents insurance policies, read the PDS for the full details of what is and isn’t covered.

You can estimate your home insurance cover by calculating the total cost of rebuilding your home including materials, labour and miscellaneous fees. There may be online calculators that can give you a rough estimate and help you choose the right level of cover. However, the most accurate way to do this is asking an Australian builder, quantity surveyor, valuer, architect or other qualified professional to provide a valuation.

Keep in mind that market value does not equal the cost of rebuilding your home, as other factors such as council fees may have an impact beyond its base value or how much you paid for the home.

There are typically two ways to insure your home – either with sum insured cover or total replacement cover.

Sum insured: This is the maximum amount you will be paid by a provider for your home insurance claim. It’s crucial to know the value of your home, so you can nominate the correct amount.

Total replacement cover: This policy will cover the cost of rebuilding or replacing your home, no matter how much it costs, but it may be more expensive and not offered by all insurers.

Excesses will apply to whichever type of cover you choose. You can check what excess and cover options are available to you in the PDS of your policy.

Underinsurance is when you don’t have sufficient cover to replace the items you’ve lost. This can be particularly devastating if your home is destroyed, and you aren’t insured for the full extent of the rebuilding costs. The reasons you might have underinsured your home include:

• Not using a calculator, and simply guessing at how much your home is worth
• If you’ve renovated or updated your furniture or appliances and not taking this into account
• Not properly taking all structures into account (e.g. sheds or in-ground pools)
• Not allowing for extra costs such as debris removal, demolition, council fees and more
• The cost of building materials and labour increased.

To avoid being underinsured or having an inadequate sum insured, you need to know the total replacement value of your home, or the total building cost. Advise your insurer of this amount when you renew or take out a new policy. Reviewing your sum insured, using sum insured calculators or seeking regular valuations can help you stay on top of key elements like rebuilding costs and other inflationary factors that can, if not considered, leave you underinsured.

Some insurers may also offer a sum insured safeguard as an optional extra you can add to your policy to protect yourself against underinsurance. This add-on offers an increased sum insured (e.g. by 25% of your nominated amount) to cover your home if your need to repair or replace your home and you find you’re underinsured. This can provide some leeway in-between valuations if you didn’t get your estimate quite right, so look for this add-on when comparing home insurance policies.

While it’s important to cover your home, you should also understand what types of insured events could cause your home to be damaged or destroyed include:

• Fires, such as bushfires or electrical
• Natural disasters, including earthquakes, lightning, storms, cyclones and more (also flooding may need to be purchased as an optional extra)
• Malicious damage and/or theft
• Escape of liquid (e.g. a burst pipe)
• Impact at home (e.g. a fallen tree landing on your house).