Introduction to Home Buildings Insurance

Anyone fortunate enough to own a home should insure it. The following are some important points to remember.

(a) Make sure the building (and contents) are insured for a realistic value. Insurance company personnel are not allowed to help you estimate the value as they were once able to do before the introduction of the Financial Services Reform Act. You must therefore ascertain how much you believe it will cost to reinstate your building. If you underestimate the cost of reinstatement (e.g. you estimate $125,000 when the cost is actually $250,000), you will be deemed at law to be a self-insurer for one half of the cost of replacement. In these circumstances, if your home is totally destroyed and it costs $250,000 to rebuild, you may not receive the $125,000, but only half because you are deemed to be self-insurer for half due to the underestimated value.

(b) Read the policy. Nobody ever does but, nevertheless, I suggest you should read it. Make sure you are covered for any outbuildings such as sheds, garages etc.

(c) If you live near a fast flowing river or creek, you should ascertain whether you have flood insurance or not. Some companies do not offer flood insurance, some will offer it for a price and some offer flash flood insurance, whatever that means.

(d) It is important to inform your insurer if you are going to be away from the property for an extended period of time. I have enclosed a case study which reveals the perils of not doing so. Most companies will allow a 60-day period but some only allow 30 and some will allow more extended periods but may not cover such things as fire or theft. It is also important to let the insurance company know if you are renovating the property and removing the roof. Insurance companies are nervous for some reason about insuring properties that have part of the roof off. Similarly, if you are planning to rent elsewhere whilst you are having the renovations done, let the insurance company know what you are doing and arrange for adjustments to the cover where necessary.

(e) Make sure you comply with your disclosure obligations at policy commencement and renewal. Most companies will require you to disclose your criminal history. One of the case studies demonstrates the perils of not doing so.

(f) Some people these days decide to change partners on a regular basis. If you are separated or divorced or simply in the process of partner changeover, make certain you advise the insurance company accordingly. If your loved one is angry with you and burns down the house, you may not be covered—as one of the case studies demonstrates. This is a complex problem, legally. I therefore recommend that as soon as there is a change in ownership of the property or, alternatively, one partner leaves the home in a serious huff, the remaining partner should advise the insurance company. Most people advise the gas, electricity and telephone companies but not the insurance company.

When the new partner is suitably ensconced, make sure their name is on the policy if you are hoping the relationship will last.

(g) Swimming Pools. This is a topic all its own but make sure you have a cover for leaking pipes, a common cause of swimming pools losing water and then collapsing. Make sure the swimming pool has an effectively functioning hydrostatic valve if you know what that means. If you do not, I suggest you find out. If you do something not recommended with regard to the swimming pool, such as emptying it out, you may not be covered.

(h) Burglary Alarms. Some insurance companies will not cover you if the home is burgled and you do not have the alarm on. Check the policy in this regard. If you are required to have an effective alarm system, make sure it is working and switched on when you leave the house. Large dogs are usually not sufficiently protective as, in my experience, they never bark when you want them to, only when you are trying to sleep.

(i) One for the sea changers. If you live in the country, do not befriend sulphur-crested cockatoos because they love eating timber homes constructed of certain types of timber. Most insurance companies do not provide cover for biting, scratching animals or birds; although, they will provide cover if a kangaroo jumps through a window. You would be surprised how many cases we receive involving substantial claims for building damage by flocks of cockatoos becoming addicted to eating the wrong sorts of things—just like people.

I hope these hints are helpful and I invite you to read the case studies.