A good time to review home insurance policies - John McGrath

Cyclone Alfred serves as an important reminder to all home owners and investors to keep your property insurance policies up to date to protect what are usually your biggest financial assets.

If you’ve renewed your home and contents insurance policies for a few years without thoroughly reviewing the details, you may be at significant risk of being underinsured.

This is because a lot has happened since COVID.

For example, CoreLogic's Cordell Construction Cost Index shows building costs have risen by more than 30% since the pandemic began, mainly due to a shortage of labour and higher materials costs.

That means the cost of rebuilding part or all of your home after a natural disaster or some other insurable event, like a kitchen fire, will be substantially higher than just a few years ago.

The cost of associated services, such as demolition and site clean-up, architect fees, surveyor fees, and council application fees for a complete rebuild have all gone up, too, due to post-COVID inflation.

Many people also renovated during the COVID years. This requires an update to your building policy’s ‘sum insured’ to take into account the improved bathroom or kitchen you now have.

It’s important to understand that if your property is destroyed, you will only receive up to the sum insured. If you are underinsured, you may have to settle for a smaller new home, for example.

One of the greatest challenges in reviewing your building insurance policy, in particular, is deciding your sum insured.

The sum insured should reflect the total cost of rebuilding your property should it be completely destroyed. This is entirely different to the market value of your property should you sell it tomorrow.

It’s very difficult for the average home owner with no background in construction to work this out.

The Insurance Council of Australia recommends using a tailored building insurance calculator created by CoreLogic and Cordell where you can type in your address to access pre-filled-in data.

Some insurers offer a sum insured ‘safeguard’ of up to 30% as an optional extra on your policy. So, if you get the sum insured wrong and a rebuild costs more, you have a 30% buffer to help cover that.

If you’re a landlord, it’s advisable to get an insurance policy that covers not just the repairs after an insurable event, but also the loss of rental income if the tenants have to move out for a while.

Consumer research website, Finder offers four specific tips for owners reviewing their building insurance policies:

1.If you live anywhere near a river or the coast, make sure you're covered for flood, which is not always included in basic policies.

2.Bushfire cover is super important if you live in a bushfire-prone area.

3.Consider whether you need emergency accommodation included in your policy.

4.Liability coverage is important for protecting you if someone gets injured at your property.

Your contents insurance policy is also worth a regular review.

Have you bought a new lounge suite or other expensive items, like artwork, over the past few years? Did you set up a dedicated home office with upgraded electronics to work from home?

The value of all these major items needs to be factored in to your sum insured.

The Insurance Council of Australia recommends this contents insurance calculator to help you.

Best wishes for a speedy recovery to those home owners, landlords, and tenants affected by Cyclone Alfred in South-East Queensland and Northern NSW over the past week.