Insurance is so confusing

Date: Apr 03, 2010
Document Type: Newsletter

Any home-owner is going to find themselves dealing with numbers of different types of insurance policies, and for many this is a jungle. Let us have a look at the different types of insurances which may be important to home owners.

The first and the most obvious is home insurance. This covers your home against damage, most commonly by fire or by impact such as a vehicle leaving the road and hitting a house. Where there is a mortgage, the lender will insist on home insurance and will have the first claim on any claim proceeds.

It is important to make sure that the insured value is realistic. For example, if a house is under-insured by 20% and is destroyed, the insurer has the right to reduce your payout by that percentage – because you have saved yourself 20% of the premiums. In strata units, the Owner Corporation insures the whole building, and the premiums are one of the expenses covered by the levies. You still have to insure your property within the walls of your unit.

Home insurance does not cover building problems such as structural defects or white ant damage, and if you live in a flood-prone area, you need to check carefully the extent – if any! – of your cover.

Home insurance only covers the bare home, and your belongings in the home must be covered by contents insurance. Often this is done in the one policy, but the separate covers must be specifically noted. Don’t forget, content insurance does not just cover the obvious things like furniture, but clothes, linen, carpets and curtains and blinds.

If you have borrowed a high percentage of your home’s value, your lender will usually require you pay for mortgage guarantee insurance. The premium, which may be thousands of dollars, is usually added to your loan. But do not think that this insurance protects you in any way! It only covers your lender against any loss if you go bad on your loan. The insurer will pay out your lender but you will then still owe the insurer the loan balance. If you want to be able to have the loan paid out on death or disability, you will have to take out your own cover for that possibility.

Home and contents policies usually provide "Domestic workers compensation" cover. If you have employed someone to do some work in the home for you and they have an accident, you may face a hefty claim. Many people use an ironing lady, a cleaner or the next door neighbour’s son to mow their lawns, so this cover is most important.

Today many policies are taken out through a lender or on the internet. When you get the hard copy of your policy, check carefully to make sure that you are covered for what you need and of course that you are not paying for cover you do not need.

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