Determining home insurance cover level

[jimmyh]

Hi guys and gals,

It's that time of year when I am about due to pay my yearly home+contents insurance premium. As usual I am looking for a way to reduce the cost, and I am wondering how people determine the level of cover that they need.

I have looked at a few insurers websites and used their calculators, the results being IMO fairly inaccurate. For example, one company's site estimated my home replacement value at $850,000 Certainly I paid nowhere near this five years ago when I bought the place. I figure that even if the place burnt to the ground, the land retains its value.

I am looking for other people's opinions on the best way to accurately work out the cover I need. Up until now I have been insured for what I paid for the place + a bit more. This seems reasonable, but may be too high, maybe far too low.

Any thoughts???

[whitewood]

I believe Insurance companies are grubs. They take your premiums but do everything possible to weasel out of claims. If you under value I believe they deem you to be part insurer and 'share' the cost of rebuilding with you.

Having said that I challenged my value recently and was told the 'value' has to include demolition, site clearing and sundry other costs that need to be met before the house can be rebuilt. I got my house built by a volume building company very reasonably but the insurance company took the rebuilding cost for a local small building firm to do the job as the replacement value.

We are all in a no win situation. If you don't insure for their value you will loose in the event of a major claim and if you do use their value then you loose on the higher premium paid.

One minor point if you start comparing premiums I think you will find that the rate reduces considerably the higher the value of the home. EG. A $500,000 house may cost $800 pa and a $700,000 house will cost $900 pa. (These are only guesses for my example.)

My suggestion is to get quotes from different companies and for different values and make your decision then. This approach has its problems as it is difficult to know what each company includes as extras. eg. glass, fusion, contents of freezer etc.

Good luck but it has to be done.
John

[hughie]

House insurance should be based on what it costs to totally rebuild your house. If you under cut this amount then when you claim they can legally reduce your payment by the % you have under cut the cost.
Why anybody would want to under cut this amount is beyond me.look at this way, you have under cut the replacement value to save money But you would want it replaced when its destroyed.Insurance balances risk against likelihood of the event.The higher the risk the higher the premium.

In short you have paid for less service but want more when the event occurs.

As to contents, go through room by room and consider replacing everything in each room. Thats the amount you should be insuring for, if the premium is too high shop around.

As long as they put the figure in writing ie $850,000, then you have an amount to work on, ask your local builder or real estate guy on building costs per sqm and be guided by that.

[jimmyh]

I take all of your points, however the estimated insurance value of $850,000 is well over twice what I believe the house is worth, then I think I am correct to question this.

Much of my furniture is made by myself, so cannot be accurately valued in any case.

The policy I currently have specifically excludes demolition costs etc so I can't say that the value is being inflated by that potential expense.

Judging from the replies so far people just go with what their insurance company tells them...

[rsser]

My insurer automatically increases the cover value by the CPI each renewal, which makes sense.

As for overall value, it's replacement costs that have to be calculated, not purchase price. A local builder can give you an av. cost per square m. as hughie suggests.

Any case, it's a competitive market so get some other quotes.

I would not take out a policy that did not cover demolition, new building permit and associated costs.

[Fuzzie]

AAMI recently changed their Home Insurance policies to be for complete replacement value. No explicit cost estimation involved. If you try their on-line quote it just asks some questions and pops out a policy cost, without you having to nominate a replacement figure.