Your home is the largest financial investment you will ever make. It makes sense to protect it from unforeseen events like natural disasters.
However, home insurance comes in several forms – and understanding the different types of coverage available is key to finding a policy that suits your needs.
What are the various types of home insurance available?
There are two types of coverages available for home insurance: contents insurance and building insurance. This covers the physical structure of your house as well as the fixtures.
A combination of content and building insurance is recommended for homeowners so that they have full coverage. When granting a loan, most lenders require homeowners to have home insurance. Renters will be satisfied with contents coverage, as building coverage is the property owner’s responsibility.
There is also a separate kind of coverage available for landlords – called landlords’ insurance – designed to provide financial cover for loss or damage to an investment property and its contents.
What does home insurance cover
Most home insurance policies offer financial protection if the property’s physical structure and its contents are damaged or destroyed because of the following:
- Explosion and fire
- Stormwater and rainwater
- Lightning strikes
- Earthquakes and tsunamis
- Trees, for example, are fallen objects
- Vandalism and theft
- Bursting pipes
Additional coverage for accidental damage, floods, and electric motor burningout is often available as an add-on and can increase premium prices. You can also get legal liability coverage for financial protection against claims of bodily injury or property damage within your home’s premises.
Home insurance coverage also comes in two main types: sum-insured cover – where compensation is based on an estimated cost of rebuilding your home if it was entirely destroyed – and total replacement cover – which provides coverage for the overall cost of repairing or rebuilding your home to the same standard.
What is the cost of home insurance?
Cost of home insurance can be affected by many factors. Your claims history and the location of your house can have an impact on the price of your policy.
These parameters are subject to change for every policyholder so it is hard to give an exact estimate of the cost of home insurance premiums. Financial comparison websites indicate that building insurance costs can start at $800, and go up to $4,000 per year. Content insurance ranges from $300 to over $800 per annum.
What amount of building insurance do you require?
Your building coverage should be able pay for the repair or reconstruction of your home in the same way it was before the damage. Two common methods can be used to estimate this value.
Estimation is based on the property’s size and the materials used.
2. Elemental estimating
The estimation is based on many parameters such as the date your house was built, how well you have installed your fixtures, and whether your home is on a slope.
What contents insurance coverage are you looking for?
It is a good idea to keep receipts for all items purchased and calculate the monthly expenditure. This will help you estimate your contents coverage.
To determine the amount of coverage you require, you can also do a personal property inventory. You can include the following items in your inventory:
- Furniture – beds, dining chairs and tables, sofa sets, wardrobes
- Home accents – carpets, curtains, cushions, beddings
- Appliances – fridges and freezers, stoves and ovens, washing machines
- Kitchenware – cookware, cutlery, dinnerware
- Gadgets – laptops, mobile devices, TVs
- Fashion accessories and clothing
- Toys, antiques, ornaments
How do you find the best home insurance policy that meets your needs?
You should consider what coverage you require when selecting the right home insurance. Flood coverage is an option if you live in an area that is susceptible to flooding.
You should also read your product disclosure agreement from your insurance provider (PDS), which outlines what your policy covers, and what is excluded. You may find the PDS confusing and full of jargon. It is best to consult your agent for clarifications.