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Protecting your home against fire, floods and theft these days is a really good idea. That is why there are a number of different home buildings insurance packages designed to help you.

You never know what will happen in life and your home is your most important asset. If anything were to happen, would you have the money to do repairs or possibly replace things? If not then getting the right insurance would be extremely beneficial. Even if you do not own your own home, you could still benefit from building insurance.

What is Home Buildings Insurance?

Home buildings insurance is designed to protect the fixed parts of a home. These include:

• The roof and flooring

• Walls

• Fixed sinks, baths and basins

• Fitted Kitchens and Bathrooms

• Garden Sheds and Greenhouses

The above are the things that are mainly covered by buildings insurance. However there are other things which might be covered; every insurance policy is different.

Now obviously if you are a tenant and you are renting furnished accommodation then you will not need buildings insurance. You would be better off looking into home contents insurance instead. However, if you are a homeowner or a tenant renting an unfurnished property then buildings insurance may be able to help you. Generally however, buildings insurance is designed with the homeowner in mind.

One thing to remember about home buildings insurance is that accidental damage may not be covered. So if you plan to do a little DIY and something goes wrong, it may not be covered by your insurance policy as it will be deemed your own fault. There are always loopholes with insurance policies and you need to be aware of these before you sign up. The small print usually tells you things that are excluded from the policy that you wouldn’t otherwise know about. As most people skip the small print, they often end up with a policy that just isn’t right for them. That is why it is so important to read the small print to understand exactly what it is that you are getting.

There will always be things that are not covered in your home insurance policy. With buildings insurance usually damage caused by storms and aircraft are not included. The amount that they cover you for is usually the amount that it would cost to rebuild the home if it were to be completely demolished. It is known as the “sum insured” and you should have a good idea of how much the home is worth before you take out a specific policy. It would be a good idea to hire a chartered surveyor to estimate how much it would cost to rebuild your home if something were to happen.

Overall whilst there are a lot of loopholes with home insurance, it is still worth taking out a policy. By taking the time to understand the different policies available, you will then be able to make a better informed decision regarding whether home buildings insurance would be right for you.

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Sustainability has become a key consideration of manufacturing in recent times – with the intended effect being that anything we make or build, not have a deleterious effect on the health of the planet. Indeed, sustainability is about using resources our in a healthy and environmentally friendly manner and in such a way that provide for the long term needs of our community. Sustainable home building pursues two broad themes: construction using environmentally friendly materials and the most efficient use of energy that is possible.

It should first be pointed out that there is much greater scope for sustainability when building new houses than there is when simply doing a green remodel of an existing dwelling – but that is not to say that there aren’t things that any of us can do, irrespective of where we live. Buying more energy efficient appliances, using water conserving showerheads, using aerators in sink faucets and revamping insulation are all within the reach of any home owner. All of these measures save money in the long run by cutting down on our energy and water bills, and because they’re utilizing less energy, they’re also measures that will see that we’re not unduly adding to the planet’s stock of greenhouse gases.

Of course, if we’re building a house from scratch then we have much greater scope to ensure its sustainability. The two areas that a prospective builder needs to concentrate on when building a sustainable home is energy efficiency and using sustainable harvested eco-friendly materials.

There are a few key areas that we can focus on when building an energy efficient house. The most abundant and cost free energy source we have is sunlight and a good passive solar design will ensure that our house is capturing enough sunlight to be absorbed by the surrounding thermal mass, which will then release heat back into the room when the sun goes down. The utility of this design is dependent on also having good insulation. The sun can also be used to generate a large portion (if not all) of our heating and electricity needs. By placing solar panels on the roof we can convert sunlight into electricity to heat water and power domestic appliances. Advances in solar technology are rapidly seeing solar power become a more cost effective way of generating power. These measures will all be complemented by making sure that all your electrical appliances are energy efficient.

Consideration should also be given to how water will be used in your home. Using low water capacity toilets and flow restricted shower heads are practices that are now actually quite common. This theme can be extended by diverting gray water from clothes washing and bathing facilities to watering plants, and by catching rain water from roofs for use inside the house. Concentrating your landscaping on indigenous drought tolerant plants can also save you an enormous amount of water.

A green builder will also ensure that he is only building with sustainable materials – ideally ones that have been certified as sustainable by the Forest Stewardship Council (FSC)- an independent 3rd party non-biased ratings agency that certifies materials as being sustainable or not; as well using non-toxic paint and finishing products.

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Nobody likes to consider the ramifications of a worst case scenario, least of all the financial consequence. However, did you know that if a major storm (of the likes we experienced in the UK in the late 1980s) struck the UK today, almost one-half of all homes in the UK would have inadequate home buildings insurance to cover the cost of repairs!

Valuation of your home buildings insurance – is it being done correctly?

Before you consider the value of your home, ask yourself a quick couple of questions:
- what is the principal reason why you have home buildings insurance?
- who assess the value of your home buildings insurance?

In most cases, the answer to the first question is you need to have home buildings insurance because it is a requirement under your mortgage agreement. The answer to your second question is also likely to be your home mortgage provider, because they feel they know the value of your home better than you do. So, what’s the problem? Well, the problem is, each year your home mortgage is going down, but hopefully the value of your home is going up. As your insurance is principally to cover your outstanding mortgage, a disparity – between the value of your home and the outstanding mortgage amount – will rapidly arise. Therefore, it is vital that you keep control of valuing your home for home buildings insurance purposes and always ensure that the insurance relates to the actual value of your home, not the outstanding mortgage amount.

Improvements to your home – are they being included?

Likely as not, over time you are going to do some building work to your home. Maybe you’ll add an extension. Put in a greenhouse. Add a conservatory. Etc. The question is – are all of these add-ons being included in the additional value they bring to your home, or are you only continuing to insure the main part of the home that was part of the original policy?

Increased costs – have you factored these in?

Nearly every insurance policy comes with an excess amount. Essentially what this means is that you have to pay a threshold amount before you can claim against the insurance company. Fine, let’s take an example: say you bought your home in 1980 and set the threshold amount at £500. Would you get more or less in materials and labour today if you were still maintaining an excess sum of £500? Answer, far less and you’d be claiming on your insurance far sooner, which in turn means your premiums are likely to be higher.

As you can see then, home buildings insurance is not as simple as guessing what you think the value of your home is. It takes certain precision and year-on-year upkeep if you want to make sure you’ll be sufficiently insured should the unfortunate worst case scenario occur.

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If you’ve ever been tempted to decrease the sum insured for your home and contents in order to obtain a lower premium, think again. You may end up paying a far higher price than you imagined.

Whenever we take out an insurance policy, we are entering into a contract with the insurer. Whether household, motor vehicle, personal accident or any other type of policy, it is a legally binding contract between the insurer and the insured.

For householders, insurance of home building and contents is vital, not merely for peace of mind but to maintain the lifestyle they are accustomed to if the unthinkable should happen.

There are several aspects to consider when purchasing household insurance.

• The insured has a duty to disclose to the insurer anything that they know or could reasonably be expected to know is relevant to the insurer’s decision to accept the risk and, if so, on what terms. For obvious reasons, this is called the Duty of Disclosure.

• Each party to the contract (i.e.: insured and insurer) has an obligation to each other in accordance with the clause of Utmost Good Faith.

Utmost good faith means that in every dealing between insured and insurer, all parties are obliged to act in a totally scrupulous manner – that is: in a spirit of Utmost Good Faith. This clause overrides all other clauses in the policy and is the measure by which the majority of insurance disputes are settled.

• The sum insured is a major consideration when taking out an insurance policy. It not only affects the cost of the premium but the insurer’s liability if a claim is made. For home building and contents insurance, the sum insured is, arguably, the most crucial aspect and the importance of “getting it right” cannot be overstated.

According to The Insurance Council of Australia, approximately 43 per cent of home building and/or contents policyholders are significantly underinsured.

Determining the Sum Insured

For many people, determining exactly how much to insure their home building and contents for is a daunting task. It needn’t be, however, with a few guidelines to follow.

Most insurance companies offer replacement cover for household policies – or “new for old” so it is important to insure the building and contents for their full replacement value, not their value after depreciation.

• Home building insurance: The sum insured is based on the total cost involved in rebuilding the property to its original or a comparative state. In addition to the actual building expenses, this includes the costs of demolition and removal of debris as well as any associated engineering, architectural and council requirements. Consultation with a professional builder or property valuer is recommended.

• Home Contents Insurance: The most effective way of determining the sum insured for contents insurance is to conduct a room-by-room inventory. Simply go into every room, listing the individual items in each. Next to each item, write down how much it would cost to buy that item brand new.

Most insurers provide literature, online information and calculators to assist with determining sums insured.

As previously stated, the sum insured determines the insurer’s level of liability in the event of a claim. If the property is underinsured, the result can turn an already traumatic event into something more devastating.

Some insurance policies contain an “average clause” or “co-insurance clause.” What this means is that in the event of a claim, if a property is found to be significantly underinsured, the liability of the insurer will decrease commensurate with the level of underinsurance.

Let’s look at a hypothetical example without the average clause:

A home is gutted as a result of bushfire. There is nothing retrievable. The homeowner had insured the building for $200,000.00 and the contents for $10,000.00. When assessors inspected the ruins and collected all the information about what was lost, it was determined that the actual replacement value of the building was $400,000.00 and for the contents, $20,000.00.

The insurer, however, was only obliged to pay a total amount of $210,000.00, less any excess, and did this. The insured could not rebuild for the amount of the claim payment and had to settle for a much more modest home, fewer household contents and a significantly reduced standard of living.

Let’s look at another scenario with the average clause:

During a wild storm a tree falls onto a house, damaging the roof and part of the living room. Again, the building was insured for $200,000.00 and the contents for $10,000.00.

As in the previous example, loss assessors deemed the building’s actual value to be $400,000.00 and that of the contents, $20,000.00. The cost to repair the living room and roof is $30,000.00 and is well within the sum insured. However, the insurer was only obliged to pay an amount commensurate with the level of underinsurance.

The underinsurance level of the building was 50 per cent and so the insurer paid 50 per cent of the repair cost – i.e.: $15,000.00. Contents to the value of $8000.00 were also destroyed during the incident, however, the insurance payment, under the average clause, will be just $4000.00.

In total, the insurer paid $19,000.00, less any excess, when repairs to the building and replacement of contents actually cost $38,000.00.

These two examples highlight the importance of placing the correct value on home building and contents insurance policies and how decreasing sums insured to save a few dollars in premium costs is really quite a gamble that could have disastrous effects.

It far better to know that should an unfortunate incident occur, we can recover what is lost.

After all, isn’t that what insurance is all about?

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Each year when our renewal notices come through the post for our home contents insurance and/or home buildings insurance, most of us automatically sign the form and send it back to the insurance company – after all, we already know how much the premiums are going to be. Big financial mistake, and here are 4 reasons why:

Did You Buy Anything New In The Last Year?

If you bought anything new in the last year, say a new television or video recorder, then the value of this new purchase will not be included in the renewal notice you just sent off to the insurance company. Likewise, if you sold anything of value over the last year, and have not informed the insurance company, then you are paying home contents insurance for something you no longer own. Either way, your not paying the right amount of insurance premiums.

Did The Costs Stay Static?

If you have home contents insurance then you are insuring your personal property for the replacement cost of buying the same thing new. On the other hand, part of your home buildings insurance should cover the cost of labour and materials. Now ask yourself, would the cost of replacing the picture hanging in your living room be the same today as it was last year? If the answer is that it would cost you more, tough luck, you’ll only get paid out what you said the cost of replacing it would be! The same can be said of your friendly builder, would he charge you the same for an hour of his time and for his materials today as he would have done last year? If the answer here is no, then you should be expecting to pay him the difference.

Did The Value Of Your Home Stay The Same?

Similar to the above, with your home buildings insurance you need to be asking yourself whether or not the value of your home stayed the same this year as it was last year? You need to be asking yourself this question even if you didn’t do any work to the house – such as building an extension – that would naturally automatically add value to your home.

Is Your House Any Safer Today?

Here the question is, have you done anything to your house over the last year that would mean your home would be considered safer today than last year? For example, did you add any deadlocks to your doors or windows? If so, then there’s a very good chance your home contents insurance premium would be reduced, as the security in your house is a major consideration in assessing your premium (along with the crime rate in your neighbourhood, so you may also want to check and see if this has gone up or down also).

Keep in mind that time stands still for no man. As such, you need to read your home contents insurance and/or home buildings insurance renewal notices very carefully to make sure that they reflect, as accurately as possible, your life today and not your life of yester-year.