Thread: Home insurance

Gday Keith. I went through Budget Direct online. My place cost 65K. Replacement - 125K. $625 pa incl 30K contents. Probably less on pension. gordo

Here, most Insurance Companies offer policies that guaranty full replacement including code upgrade as necessary.

I look at it as piece of mind and hope to God that I never need to use it.

Oh, typically insurance companies want to insure up to the value of your unpaid mortgage because that is what the lender requires.
(No, the lender is not looking out for you. They are only looking out for their money.)

Hi Keith

Let's look at the worse case scenario ... your house is mostly destroyed by fire.
1. you'll need to rent somewhere to live while the "authorities" decide what happened and you wait for approval to demolish the wreckage. This might take 3-6 months.
2. you'll also be in the rental while your local council decides what they will allow you to build on the land. This might take another 3-6 months, or in some parts up to 2 years if the replacement house is not EXACTLY the same dimensions and shape as what was there before.
3. you'll also be in the rental while the house is rebuilt -- maybe another 6 months.
4. You'll likely need to rent or buy furniture and electrics for the rental which you'll likely send to a dumpster when the replacement house is finished.
5. decisions on type / style / finish of internal doors, taps, and bathroom and kitchen fittings can add several tens of thousands to the cost of the rebuild.

so you could be in a rental for 2 or more years while the house is rebuilt.
What you insure for needs to cover these costs.

I don't know what rental rates are in your neighbourhood, but where I used to live, 2 years renting would cost more than $100,000.

As others have pointed out, insurance is there to cover worse case scenario generally, for eg most jewellery insurance especially on diamond rings etc generally get valued at nearly double its initial purchase price. To take into account increases in value etc. Also introductions such as fire regulations as a result of the recent bush fires Australia has experienced can significantly add to the building cost of your replacement home. Then there's also the cost of removing the rubble left behind/demolishing whats left and preparing your land to be rebuilt upon.

When valuating the true cost to replace your home and contents things to take into account which when i did my last valuation that adds up very quickly is the cost of all the fittings and bits that are in your house that you've purchased over the years. Obviously if you don't care about these things feel free to lower valuation.

As you can see there is much more than just the cost of "building a house", yes the land value isn't taken into account but making a house a home again costs alot more than cost to build generally toted by many home builders. At the end of the day, if you're really worried get a home valuation by a professional and go by that, otherwise pick a number and live with it, chances are you'll probably never use the full extent of your coverage.

Thanks for the replies.
The thing that baffles me, is that most insurance companies value the house at 2.5 times the actual cost to build a new home on a vacant block.
The contents are not included in this value, only the house. I am insuring the contents for $65,000 and that is not an issue.
The RAA ( the South Australian motoring association ) who insures homes as well as cars, boats etc. came up with a replacement value of $165,000 for the house and $65,000 for contents, which looks realistic to me. Yes I would have to rent while a new house is being built etc. but that is something that I would be happy to wear. I cannot see how the remaining insurance companies would have a valuation of $417,000 - $480,000 for the building, it looks like gouging to me.

Thanks
Keith

the quoted cost to build a new project home is generally based upon using the absolute minimum cost option for the materials used.
"Extras" like specifying timber rather than plastic internal doors, a front door with "style" rather than painted masonite, something more than one light switch and power point per room, etc will all add to the cost.
In the kitchen and bathroom alone there could easily be a $40-60,000 difference between using laminate or stone bench tops, plastic vs Blum drawer slides, laminate vs solid wood doors and drawer faces, plastic vs porcelain bathroom fittings, plain vs "fancy" taps, heated bathroom floor, noisy vs quite appliances, matching vs miss-matched kitchen appliances, the list goes on.

However, at the end of the day it comes down to your risk appetite.
But I do suggest you seriously consider where you would find the money you would need to pay the rent while your house was rebuilt. $700 per week is a very sizeable wack in anybody's language.

Originally Posted by pedro66

I cannot see how the remaining insurance companies would have a valuation of $417,000 - $480,000 for the building, it looks like gouging to me.

Thanks
Keith

If you can build a decent sized house for $165,000 youre doing pretty well. Im about to build a new 150m2 place in the Adelaide Hills and Ive budgeted at least $450,000 for the house. Current insurance on the existing place (same size) is $450,000 for the house and $30,000 for contents.

Thanks Ian,
You are making sense, I am now satisfied.

Best regards
Keith

Can I suggest one thing, do not use online calulators but rather ring the insurance compan. My current house is worth way more than I paid for it based on the work I have done on it, and because of that most of the online calculators are unable to cope. Ringing around will get you can get a much cheaper rate and usually a better policy. Most companies will also negotiate on price.

My experience insuring our home was very eye opening. I received the renewal and decided that maybe we had better give the company a call and correct what I thought were a few minor errors. By the end of the conversation they told me they were not interested in insuring our property as it exceeded the house value they were prepared to cover in any situation. I then rang a few more companies and got much the same answer so in the end I was forced to use a broker. No way would I ever have thought that our house was valued for insurance purposes at the figure they put on it. It definitely pays to update any changes as they occur to avoid problems such as this.

My mortgage lender told me an exact figure to insure the house for. Cost me 120k 9yrs ago to owner-build. Lender demanded 385k house insurance

If you think your insurance premium is high, try getting a quote (online or by phone) with a postcode of 4873 (North QLD)

(Really, give it a go)

It looks like the consensus for the value for insurance is around the $400,000 mark.
I have had the house and contents insured with APIA for the past few years, and their current valuation of my house is $416,000 and contents at $71,400 an excess of $500 & $300 with a premium of $817.
The insured value is ratcheted up a bit each year which is normal, and this year the premium jumped by $100 to $817. Which led me to start questioning the valuations.
At the moment I am looking at comparisons with other insurers.
By the way, I have had house and contents insurance for 46 years and have never made a claim.
I guess the high jump in premium is from the effect of storm and flood damage in Australia in recent times.
Insurance companies will make sure that they are not losers. APIA have quoted the highest premium of any insurance quote I have had in the past few days, which really shows how they are for the pensioners, (not).

Keith

Hi Keith

Don't forget to put a reasonable valuation on your tools.

but this can be tricky. If you needed to replace 4 or 5 Stanley planes, you might, over 6 to 12 months, be able to purchase them for $30 to $50 each and then spend a few weeks fettling each one and adding an after market iron ... but in the event of a near total loss at age 70, would you want to be 75 when your tools were "fully replaced", or be up and running as soon as the shed was built? If the later you might want to set your tools' replacement value at what it would cost to buy new ones from mid-level manufactures like Wood River.