Even though it’s not compulsory to get home and contents insurance, most lenders require you to get at least home insurance before purchasing a house. This is needed to keep your asset adequately protected by minimising the gap between the seller’s insurance and your own. When buying home insurance, you chance also choose to purchase contents insurance if you have several items of value inside the house. However, except for when you are buying home insurance before completing the mortgage application process, purchasing home and contents insurance is generally your personal choice.
What is the difference between home insurance and home and contents insurance?
A home insurance policy generally covers you for the damage to your building and permanently fixed or installed items on the premises, such as the solar panels, swimming pool, or fences. However, it does not cover the items inside your property, such as your furniture, curio, kitchen appliances, jewellery, etc. Such things are covered by a contents insurance policy, which needs to be taken out separately from your home insurance policy, or it can be bundled into a single home and contents insurance policy covering damages to both the building and items inside it.
How to get the right home and contents insurance cover for your house
Even though home and contents insurance is often marketed as a single product, it includes two separate covers that may be worked out individually to suit your needs.
Home insurance covers you for the damages to your building and various permanent fixtures and fittings attached to it. Depending on your cover, you may be protected against damage from certain events, such as bush fires, floods, theft and vandalism. You can also opt for additional covers to increase your coverage if needed. For instance, you might want to opt for an additional flood cover or fire cover, depending on where you live. While this could increase your premium slightly, it will give you the peace of mind that your financial loss is covered in case of any eventuality. However, if you don’t live in a flood-prone area, you might choose to drop off the flood cover in your policy to save some money on your premium.
When buying home insurance, it’s important to decide on the kind of cover you need. You’ll generally find two types of covers on the market – total replacement and sum-insured. Total replacement cover pays you the cost of rebuilding the house in case of damage (calculated as per its condition prior to damage), while sum-insured cover protects you for a certain amount.
You might find that a sum-insured cover is cheaper than buying a total replacement cover. But note that you might not be covered for the full cost of rebuilding your house if you purchase the former. If you are buying a sum insured policy, it’s worth calculating the cost of rebuilding your house. While calculating, a little extra is generally better. Rebuilding your house will lead to further incidental costs. For instance, arranging for temporary accommodation in case of major work and even getting the site cleaned up after a flood or fire can significantly impact the rebuilding cost.
A contents insurance cover protects your belongings inside your house, such as your kitchen appliances, furniture, jewellery, and other precious items. Depending on your insurer and the level of cover you buy, it can also include veterinary expenses for your pet injured due to an accident, earthquake or lightning.
Like home insurance, you can choose between two types of cover – replacement or new for old cover and sum insured cover. The former is generally more expensive than the latter. However, a new for old cover doesn’t imply you can buy just about any latest model to replace a damaged good. The insurer will generally specify the maximum cost of the replaced goods you can buy, depending on the value of the insured item when buying the policy. Irrespective of whether you choose a replacement or sum insured policy, it’s usually a good idea to make an inventory of your precious items before buying contents insurance to ensure you buy an adequate cover for your belongings.
Tips for reducing your home and contents insurance premium
1. Purchasing home and contents insurance as a package
One of the ways in which you might be able to reduce your premium is by purchasing home and contents insurance as a package instead of buying two separate policies. However, it’s worth checking the inclusions and comparing quotes from several insurers, for both individual and packaged deals, to get the most competitive deal for you.
When it comes to the right insurance cover, no single approach works for everyone. While a packaged deal is usually cheaper, checking what’s included in the cover before signing the dotted line can help ensure you don’t miss out on anything important
2. Increasing your excess amount
Your insurance premium also depends on the amount of excess you choose to pay. Excess refers to the amount of money you need to pay from your pocket when you make a claim on your insurance policy. Increasing your excess can help you reduce your insurance premium but remember you’ll have to pay this amount from your pocket if and when you need to make a claim. Therefore, it’s important to opt for a realistic amount that you can afford to pay in case you actually need to make a claim.
3. Switching insurance providers regularly
Being loyal isn’t always a good thing. Various studies have indicated you can save money by regularly comparing deals from multiple insurers instead of automatically renewing your policy each year. If you find a better deal, ask your insurer to match up or switch over to save money.
Even though buying home and contents insurance is usually a personal choice, having an adequate cover can save you from a financial shock in case of an eventuality. However, be careful not to insure items you don’t have or hide their condition when purchasing the policy. Such misrepresentation can have serious legal implications if caught and perhaps void your insurance cover. Many insurers also require you to maintain the house properly and include safety measures, such as a security alarm, to prevent frivolous claims.