Total replacement home insurance cover explained

When you take out a home insurance policy, the insurer agrees to cover the cost of repairing or replacing your property if it is damaged or destroyed in an insured event. For example, if a truck crashed through the side of your home or investment property, you could make a claim with the insurer for the repair work to make the place liveable again. If the damage was enough to collapse the house altogether, your insurance may help cover rebuilding the property from scratch up to the same standard.

Many insurers offer sum insured cover, where you and your insurer agree on a maximum amount the insurer will pay out if you make a claim. However, it can be tricky to estimate the right amount to insure your house for, and it may cost more than you expect to repair or rebuild your home, such as if building material prices have risen sharply since you took out your policy. While some insurers have begun offering ‘safety net’ clauses that may be able to increase your sum insured by up to 30%, you could risk being underinsured when you need it most.

Total replacement cover removes some of these concerns. Under a total replacement home insurance policy, the insurer agrees to foot the bill to restore your damaged or destroyed property to its previous state, regardless of the cost. This can save customers a lot of headaches trying to estimate the replacement value of their home and set a sum to insure.

That said, because the insurer will need to assume that your home’s replacement costs could blow out, you may be charged a higher premium for this level of home insurance cover. Also, fewer and fewer home insurers are offering total replacement cover home insurance policies, meaning you may not be able to compare many options before making your choice.

Otherwise, total replacement home insurance policies act a lot like sum insured home insurance policies. They also insure the property against a variety of events, with exclusions for specific instances. The process of making a claim is also similar, though it may take longer for some claims to be assessed, as the insurer may want to make a more thorough assessment of the damage and the costs involved for a total replacement claim.

The costs of a total replacement home insurance policy can vary greatly, depending on a range of different factors. Calculating in advance how much this may cost can be challenging, so you may want to compare home insurance policies and ask several different insurers for quotes. From here, you can work out which policy offers you and your household the best value for money.

Some of the factors that can affect the cost of a total replacement home insurance policy include:

• Property size e.g. number of bedrooms, bathrooms, land size, number of storeys
• Building materials e.g. wood, brick, stone
• Property age – older properties may be considered more susceptible to damage and more expensive to restore to the original standard, especially heritage homes
• Hazards in your area e.g. bushfire-prone scrub, flood zone

It may be possible to cut down the cost of your home insurance premiums by making some relatively small adjustments. For example, opting to pay a higher excess if you make a claim can mean paying lower insurance premiums. You may also be able to opt out of some optional extra cover, or bundle additional insurance policies and/or financial products to secure a discount.

You could also consider seeking out an insurance broker, who could offer more specific insight into which insurers and home insurance policies may better suit your needs and budget.