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Imagine this scenario. You’ve recently signed the sales contract on your new property, and you’re getting ready for settlement day in three weeks. Organising home insurance is one of the jobs on your to-do list to be finalised by settlement.
Then the alarming news comes in that faulty wiring has sparked a fire and caused serious damage to your new home. You feel a wave of relief that at least you’ve not taken possession yet, so won’t be responsible for the cost of the damage.
Then you find out the seller doesn’t have home insurance. You realise with a sickening dread that the cost of repair could be coming out of your pocket. A close inspection of the contract and an urgent phone call to the solicitor confirms that in your state, you’re legally responsible for the damage.
As the level of destruction to the home is not sufficient to void the sales contract, you’re forced to settle on the property. With all the expenses of the purchase, you have no idea where you will pull the money for the repair bill.
Sounds scary? To protect yourself from this scenario, take out building and contents insurance at the time you exchange contracts. In some instances, this insurance is a prerequisite of getting a home loan. And to ensure you get the right level of cover, it’s vital to be familiar with the fine print before you choose a policy. Here are four helpful things to know.
Understand the difference between sum-insured and total replacement
There are two types of cover. ‘Total replacement’ cover includes all the costs to rebuild your home to the standard it was prior to an event. ‘Sum insured’ will cover you up to a set amount that you have selected. Check whether your insurer increases the sum-insured each year or offers additional coverage to account for projected rebuilding cost increases.
Get it right from the start with professional help.
Don’t risk being left under-insured because you haven’t accurately calculated the rebuilding cost. A standard error is to use the market value of your property. Instead, to reconstruct the property to the same quality and specifications, you need to estimate the current total cost of a rebuild – refer to reputable insurer online calculators for estimates. Include any structural improvements you’ve made to the home since your policy was taken out, like a carport, pool or deck. Also include additional costs like demolition, debris removal, legal and architectural fees that you will incur during the rebuild.
The same rules apply for ‘contents’ insurance. Each year, before you renew your policy, review the replacement value of your contents and adjust your cover accordingly. Work your way through each room, listing all your belongings, and how much it would cost to replace them. Keep receipts as you may be required to provide evidence of value.
Be aware of policy exclusions
Some policies will cover the value of your possessions while others will replace them with new items (‘new’ for ‘old’). It’s unlikely that your policy will cover every loss situation, so be aware of standard exclusions like ‘accidental damage’, ‘antiques and collectables’, ‘lack of property maintenance’.
There may also be limits for items like jewellery, artwork and electronics. If you have a specific asset worth more than the standard limit, then a capped policy won’t replace these unless they are insured separately.
If you live in an area prone to floods, you may have to pay extra for flood damage. Even if your policy protects against ‘flood’ or ‘fire’, be sure you know what this means as there are usually limits to what type of damage this entails.
Take advantage of bundling discounts
Look for discounts that come with consolidating your insurance products with a single insurer. For example, it might be worth bundling contents with building insurance cover. At Yellow Brick Road, we offer the convenience and cost savings of consolidating different types of policies like property, liability and landlord insurance.