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 Home and Contents Insurance Guide
Protection for your most valuable assets.

Choosing your insurance

Leaving your home and its contents unprotected against theft and damage is a very risky prospect one small accident and your biggest asset could go up in smoke.

However, many Australians are still prepared to take that risk, and a large percentage of homes around the country remain uninsured or underinsured.

When you take out home and contents insurance, you essentially pay an insurance company a specified sum to take responsibility for your risk. But which policy should you choose? This guide outlines some of the major issues associated with home and contents insurance.

Choosing your insurance

The home and contents insurance market is highly competitive and there's a wide variety of products out there competing for your dollar. But how do you know which one is right for you? And what should you be aware of when you are purchasing insurance?

Choosing a policy

There are a number of questions that you need to ask yourself when you are choosing a home and contents insurance policy.

1. What events are covered under the policy?

No matter what policy you choose, you will only ever be covered for events that are clearly indicated in your policy document. However, different types of policies provide a different level of cover.

Accidental loss or damage policies are very broad, covering all loss and damage with a minimal number of exclusions. Generally, the broader the policy, the more expensive it will be.

Defined events policies, on the other hand, only cover a specific list of events which are set out in detail in the contract, such as earthquakes, fires, theft and some types of water damage. It is essential that you understand exactly what is and is not covered common exclusions include flooding, subsidence, some types of storm damage and the effects of tree roots, as well as tidal waves and acts of terrorism.

2. Which items are covered by the policy?

Home and contents insurance does not always come in a related package you can opt to take out insurance on your house but not your contents, and vice versa. In relation to contents, there may be limits on the amount you can claim for a specific item. For instance, there is usually a maximum amount that can be claimed for a CD collection, or a particular piece of jewellery. You can insure these particular items for their full worth by paying a larger premium or taking out a separate insurance policy.

If you fail to keep your home and contents in good repair, your insurer may not pay you the full amount if you have to make a claim.

3. Is depreciation an issue?

Most insurance policies these days provide replacement and reinstatement cover, which means that all damaged or lost items are replaced 'new for old', regardless of their age. However, there are still a few insurance policies that replace items at their depreciated value this is known as indemnity cover. Both types of policies may place age limits on replacing items with limited life spans, such as refrigerators.

4. What level of excess do you need?

Excess is the money you contribute towards any claim you make on your insurance policy. This fixed amount should be clearly stated in your contract. Generally, you can set your level of excess, and this level directly affects your insurance premium. If you are willing to pay a large amount of excess in the case of a claim, you will pay less money initially. Conversely, if you do not want to pay excess at all, you will pay more up front. It's all about risk the more you are willing to expose yourself, the less you pay in the short term.

The process of buying insurance

When you decide on the policy that best suits you, the insurer will ask you to provide them with a variety of details. This will include information such as the location of your home, the type of security you have installed and, if you have a mortgage, the details of your lender.

It will also ask you for more personal details, such as your age, insurance history and whether or not you have any criminal convictions relating to fraud or malicious damage. If you have such a criminal record most insurance companies will not allow you to take out a policy.

It is essential that you answer these questions accurately you have what is called a 'duty of disclosure'. The insurer does not generally confirm your details at the time that you take out the policy. Rather, it checks them when you make a claim, and if it finds that you have provided inaccurate information, it can reduce the claim or refuse it altogether.

The cost of your policy will be determined by a variety of factors, including your age, your insurance history, the location of your house, the excess you have chosen, the sum for which you have insured your home and contents, and any optional covers on specific valuable items.

There are various discounts available on the cost of insurance. If you have several policies with the same company (for instance, car insurance and life insurance as well as home and contents insurance) or you have held a policy with a single company for a number of consecutive years you may receive a significant reduction in premium. Additionally, if you have never made a claim on your insurance, you will usually be eligible for a no claims bonus on your yearly premium.

After you have paid your premium you receive a certificate of insurance and a general policy document, which should clearly explain what is and is not included in your policy. Make sure you read this document carefully if there is anything you do not understand, consult your insurance company for clarification.

Next The value of your home and contents
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