So, you have decided to explore some options for home insurance. One of the first steps is to determine the level of cover you need. It is a common mistake to think that home insurance is based on how much your home would sell in the market. What you will need to know is in fact, the cost, at the time of the loss, to repair or rebuild your house at the same location with the same quality of materials and workmanship.
Knowing this cost prevents you from over or underinsuring your house. This is important, as in the unfortunate event that your home is completely damaged (e.g. fire burning down the entire house); you will need to have sufficient insurance to pay for rebuilding it and without having to cover any difference in cost of materials and labour.
The best way is to hire a professional risk engineer to conduct a detailed assessment of your home. The risk engineer will determine precise measurements of your house and prepare a professional Rebuilding Cost Assessment Report. Some insurance companies, such as Chubb have in-house risk engineers who can visit your home for an assessment, only after you acquire a Masterpiece policy
Tip: Having the floor plan of your house ready will help the risk engineer and speed things up!
In New Zealand, most apartments are on leasehold that has a management company (strata title) or building owner who has an insurance package already in place for the entire building. So, it would not be necessary to include the building cover in your insurance policy.
If you undertake any structural changes to your house, such as adding new extensions or converting the loft/attic to a room, your rebuilding cost will likely be affected. Under such circumstances, it is recommended that you increase your home insurance to match the increase in rebuilding costs.
Tip: Before you commence any new projects, discuss it with your insurer first.
Once you know what your rebuilding cost is for your property, you can seek advice and request for quotations for home insurance. If you are a homeowner, the sum insured amount on your declarations page under the “Building Cover” is the most the insurer will pay to repair or rebuild your home if it is damaged by a covered peril. Covered perils can include fire, windstorm and floods.
The sum insured amount would normally be on Replacement Cost which is how much the Insurer will pay to replace and/or rebuild the damaged portion of the house. Many insurers offer an “Extended Replacement Cost” coverage, which will pay an amount above the Building Cover, to cover cost overruns or price surges, such as when there is a shortage of particular building materials. Insurers would indicate this as an additional percentage above the limits that appear on your policy.
It is advisable to purchase a combined building and contents policy as it covers all your needs. It will also be easier for you to manage just one policy, rather than multiple ones. Contents would entail all your personal belongings in your property. You may even itemise the more valuable items (such as jewellery, watches, fine art and wine) that you own and indicate them in a separate section of the policy. These would then be insured on an agreed value with no depreciation and deductibles.
Tip: Ensure that there are separate sections for “Home/Building” and “Contents” in your home insurance quote to ensure that there will be sufficient cover for your valuables.
When it comes to your home, you probably find it difficult to put a value on it. Would it be the price you bought it, or even sell it in the future? What about all the memories of all the happy times you spent there with your family?
Homeowners should focus on what it would cost to rebuild their home. Most of the time, people are not aware that they may be underinsured. As a result, when a loss or damage occurs, they would not be sufficiently covered and are devastated. So, it is extremely important to understand what rebuilding and replacement costs are how they are determined and how your insurance policy will respond.
If you would like to find out more on how you can get an accurate appraisal for your home, contact our specialists for a free consultation at firstname.lastname@example.org or click on the 'Contact Us' button below to send in your query.
'What is the Value of Your Home' is written by Regina Baxter, Regional Fine Arts Specialist & Business Development Underwriter, Personal Risk Services.