How much should I insure my house for?

As a homeowner, it’s important to know that your property is insured. Sometimes it can even be a requirement of your mortgage to have an appropriate amount of insurance. 

It’s important to determine the exact amount you’ll need to be insured for to cover potential losses. Understanding the nuances of home insurance can help ensure your property and possessions are adequately protected without overpaying. 

How much home insurance do I need?

Home building insurance, also known as home insurance or homeowner’s insurance, covers the structure of your home, so it can be repaired or rebuilt if it is damaged. This may include damage from a range of different incidents, including natural disasters, fire, and theft.  

One way to determine the appropriate amount of home building insurance is to consider the structure of your home and how much it would cost to rebuild, including construction materials and labour costs at current market rates. It's important to regularly review and update this figure to account for inflation and any additional home improvements or renovations that could increase the rebuild cost.

When working out the cost to rebuild, consider factors like:

• the size of your home;
• the quality of finishes;
• any unique features or custom-built aspects;
• the cost of clearing the site, and;
• architect fees if necessary.  

Online calculators provided by insurance companies and independent financial advice websites can offer a preliminary estimate of your property's value, but consulting a construction professional may provide a more accurate figure of the total rebuilding cost.

How much contents insurance do I need?

Contents insurance covers the personal belongings kept in your home, including furniture, electronics, clothing, and sometimes even jewellery, against loss or damage. 

To accurately gauge the coverage needed for your home’s contents, start by conducting a thorough inventory of your possessions. Make a list of the items in your home and their approximate value, and tally up the total. If you have specific high-value items that you want insured, then saving the receipts for these items can be helpful, as there may be limits on the maximum amount an insurer will cover per individual item under a standard contents insurance policy.

A common mistake homeowners make is underestimating the total value of their contents, leading to underinsurance. Regularly updating your inventory, especially after significant purchases, can help ensure your coverage reflects the current value of your belongings.

What is the difference between total replacement cover and sum insured cover?

There are two main options for insuring your home:

1. Total replacement cover provides the most comprehensive protection, covering the total cost of rebuilding your home to its original condition before the damage occurred, without setting a cap on the amount.
2. Sum insured cover involves insuring your home for a predetermined amount, which represents the maximum payout in the event of a claim.

When choosing between these two options, you will need to think carefully about your current financial situation, as well as how much extra you might be willing to pay if your home is destroyed and needs to be rebuilt. Total replacement cover offers peace of mind that your home will be fully rebuilt by your insurance payout, but this kind of cover might come with higher premiums. On the other side of the coin, sum insured cover might be cheaper in terms of premiums, but you will need to carefully calculate how much coverage you need to avoid being underinsured and having to pay out of pocket if your home is destroyed and needs to be rebuilt. 

How do you estimate the cost of home insurance?

There is no fixed cost for home insurance. Your premiums will be determined by several factors, including:

• The type of cover you choose: Sum insured cover is likely to be less expensive than total replacement cover, though it’s important to make sure you won’t be left underinsured.
• The excess amount you choose: Your insurance excess is the amount of money you nominate to pay upon making a claim, before your coverage kicks in. The higher the excess, the lower the premiums you’ll pay, and vice versa. Keep in mind that a higher excess means you’ll have to pay more upfront if you make a claim.
• Your payment frequency: Some insurers let you pay your premiums monthly, quarterly, or annually. It’s often cheaper to pay one large annual payment, as insurance payments tend to be more expensive when paid monthly.
• Your location: The cost of home insurance can vary depending on where you live - if you live in an area that’s especially prone to crime or to natural disasters, then you may find that your premiums are more expensive to take this into account.

How can I avoid underinsurance?

Underinsurance occurs when your coverage is insufficient to cover the cost of rebuilding your home or replacing its contents. To avoid underinsurance, it is important to regularly review and adjust your insurance coverage to reflect any changes in your home's value and contents, or changes to the cost of construction and materials.

When it comes to contents insurance, it’s also important to think about whether you have any high-value items that might exceed the limits of your cover, such as a piece of jewellery. For these items, it may be worth considering single item insurance. 

How often should I update by home insurance?

To avoid underinsurance, you may want to review your home and contents insurance policy annually, as well as after making significant changes to your property, such as renovations or extensions, or after making major purchases that could affect the replacement cost of your contents.

Staying informed about the real estate market and construction costs in your area can help you anticipate changes to the insured value of your home. By maintaining open communication with your insurer and seeking periodic appraisals or valuations, you can ensure your coverage remains adequate over time, safeguarding your financial stability against unforeseen events.

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