What is home buildings insurance?

Home insurance differs among different insurance providers, insurers offer varying levels of cover and different exclusions. By dividing the types of policies into, home buildings insurance and home contents insurance, you may find it easier to compare, you can buy these separately or together with some providers offering discounts for a policy covering both.

Home buildings insurance

As a condition of giving you a home loan nearly all mortgage lenders want to see that there is home buildings insurance in place, whether it is through your strata or through your own buildings insurance.

Home buildings insurance usually covers more than just the main building. Outbuildings and garages can be covered, plus pretty much everything that’s a permanent fixture outside, including gates, fences, drives and swimming pools.

However, buildings insurance also has lots of exclusions for these extra things. For example of gates and fences are not usually covered for storm or flood damage. Another example is that in order to make a subsidence claim for your swimming pool, the main building also has to be affected.

With those sorts of exclusions in mind, buildings insurance usually covers damage caused by:

• escape of water and oil (the damage is covered, but repairs to the offending tank, pipe or appliance that leaked are not)
• falling aerials and satellite dishes
• falling trees and branches
• fire
• flood
• heavy storms
• lightning
• smoke
• subsidence
• vandalism and theft (or attempted theft)

You may also find you have additional cover with some insurers in the following areas, whereas other insurers may ask you to pay an extra charge. This includes:

• the providing alternative accommodation if your home becomes uninhabitable
• cover against your own liability if you injure someone or damage their property (usually $10 m)
• glass, baths and wash basins

Buildings insurance excess

Typically, you pay a $200 excess for most claims, although you’ll pay more like $500 for subsidence claims. The insurer might offer a policy with a higher excess if it thinks there’s a greater risk of you making a claim. Alternatively, you can ask for a higher excess in order to get a lower premium. If you wouldn’t claim for any damage worth less than $500, it makes sense to increase the excess.

How much to insure your property for

The sum insured should be the rebuild cost of your property, not how much it’s worth. You don’t want to over-insure yourself. If your property is levelled by a freak storm, the insurers won’t pay out more than the building costs to rebuild, so you’ll have paid a higher premium for nothing.

The cost of under-insuring yourself is a much greater risk. If the cost to rebuild your property is $200,000, but you insure it for 20% less than this at $160,000. If your house burns down your buildings insurance will only put $160,000 towards the cost of rebuilding. A survey in 2000 showed that 87% of homes are underinsured with 59% of all homes underinsured by over 30%.

This also impacts on smaller claims, for example if you suffer $10,000 of damage due to a bush-fire, the home insurance provider will say that you are under-insured by 20%, so it will deduct 20% from your claim, ie it will only pay $8,000 (less the policy excess).

But all is not lost. You can get a pretty good idea of rebuild costs. Many of the online home buildings insurance providers provide online estimation tools to help you decide what level of cover your home should be insured for.

Don’t forget to add an appropriate amount for your garage, decking, paths, fences, swimming pool and so on.

Most years the price of materials and labour goes up. Some home buildings insurance providers offer policies linked to inflation, so that the cover goes up automatically each year. However, the cost of building your home often goes up at a higher rate than inflation, so keep an eye on your level of cover and if a large discrepancy builds up, increase the cover.

In addition, if you are going to extend your home, the value of your property is going to go up and so would the cost of rebuilding your home. Make sure you inform your home insurance lender about it.

Keep the cost down

If your property is damaged, you have a responsibility to stop the damage getting worse. Many policies cover the cost of temporary work and provide emergency help lines.

It’s very important that you don’t go fixing non-emergency damage without contacting the insurer first. They may have reduced rates or specific providers they wish to use.

Cheaper home insurance

If you’ve insured your home via your bank, mortgage lender or on the high street, you’re probably paying way too much. Research shows that most policyholders just renew their policy with the same provider, insurance providers ‘buddying-up’ with high street providers know this and the premiums they charge reflect this.

Whoever you’re with, shop around and save yourself a small fortune. A little effort in comparing home insurance providers can produce considerable savings. Our affiliations with home insurance brokers is a good place to start, why not ask them for a quote and see how much you can save.