When you buy a new home, there’s a lot to organise and finalise – and we don’t just mean the contracts – your home insurance is a major part of things too.
But if you’re still feeling a little lost after doing home insurance research online, you’re not alone.
The world of insurance can be a maze of jargon and technical terms, leaving even the most informed homeowner feeling overwhelmed and confused.
But don’t let the confusion get in the way of protecting your biggest investment.
Whether you’re new to the insurance game, or just need to brush up on your knowledge, we’ve pulled together the five essential terms you need to know to navigate your next home insurance policy.
Put simply, home insurance covers the building itself, the fixtures, and things like plumbing and built-in cabinetry as well as outbuildings, driveways and fencing.
Home insurance can help also cover the cost of repairing or rebuilding your home in the event of unexpected events.
Contents insurance covers household items and personal belongings, such as furniture, televisions, clothes and jewellery.
“Having insurance provides peace of mind,” says a GIO insurance expert.
“if you’ve got the right cover, insurance allows homeowners to rebuild, repair or replace where they may otherwise not be able to afford to if a major event occurs.”
Sum insured refers to the amount you have chosen to insure your home and its contents for.
This is often the starting point of any conversation about a home insurance policy, as it’s the maximum amount your insurance company will pay out in case of a loss.
For example, let’s say you have a sum insured of $450,000 for your home and $50,000 for your contents. This means that in the event of damage, theft, or loss, the insurance company will pay up to a maximum of $500,000 to cover the cost of repairing or rebuilding your home and replacing your personal possessions.
If the cost of the repairs or replacements exceeds $500,000, you will be responsible for paying the additional amount, plus in some cases a policy excess.
“Remember, your home sum insured should be based on rebuilding or replacement costs – not what you bought it for,” a GIO insurance expert says.
“The home building sum insured usually also includes fencing, paths, and driveways, inground pools, sheds, solar panels, and water tanks for example.”
You’ll hear this term a lot.
Excess refers to the portion of a claim that you, as the policy holder, are responsible for paying.
It’s the amount that you must pay out of pocket as your contribution to the cost of the claim.
For example, let’s say you have a home insurance policy with a $500 excess.
Your claim is for $5,000 damage caused to your home. In this event, you’ll be responsible for paying $500 of the claim (i.e. your excess), and the remaining $4,500, if approved, will be covered by your insurer.
But remember, the limit will always be up to the sum insured amount.
‘New for old’ has two components to it – for your home, and for your contents – and refers to the replacement of items.
Home – rebuild or repair your home with the same materials (if available) or use equivalent materials of the same quality, specifications and purpose.
Contents – replace old items with new, equivalent in quality and price (like for like, where possible).
This one is simple – it refers to any exclusions on your home insurance policy that won’t be covered in the event of an incident.
Always make sure you understand what these are.
Under insurance is when the sum insured you have isn’t enough to replace your belongings or repair/rebuild your home.
For example, If you have made renovations or additions to your home and have not updated your sum insured amount since completion, you may not have a high enough sum insured to cover the cost to rebuild or repair your home in its current state.
The same goes for contents; often contents sum insured amounts aren’t updated if new items such as TV’s, whitegoods and furniture are purchased.
It’s worth reading the PDS of your home insurance policy so that you’re aware of what it covers you for. Consider if the level of cover you have is right for you and if you need to add extra optional covers.
Research is your best friend when it comes to making informed decisions and achieving your goals.
You can do this research with GIO’s free online calculator where you can enter your address, answer a few questions about the size of your property, and it will provide you with an estimate of the cost to rebuild your home.
When answering the questions, be as accurate as you can about your home – what are the walls made of? The roof material? And any details of other features such as sheds, solar panels and additions.
“The best thing to do is do your research to make sure that you get the cover that best suits your needs for a price you are comfortable with paying.”
Written by GIO and published on realestate.com.au
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