Home insurance

[KeithP]

I am in the process of re-evaluating my home insurance, and are sceptical of most online house valuations.
I live in an Adelaide suburb where the median house price is $425,000

When I use the online quote for RAA Home Insurance, they stipulate that the land value is not included in the house rebuild cost, and the replacement value is $165,000.
The last time I checked, it is about $12,000 to demolish and remove a house for a new build. A new house of about the same size is around $130,000 plus carport, workshop, solar power etc. So I think $165,000 looks about right.

Using the same input data about the existing house, all other insurance companies are between $417,000 and $480,000. Which either includes land value or the valuation is tailored to fit the real estate market value.

To the best of my knowledge if my house burnt down, the land it sits on does not burn away and leave a hole through the earth which would need to be replaced.

So what is happening here? RAA looks good but I do not want to under insure, and I don't want to be ripped off either.

Looking forward to you views,

Keith

[OldGrain]

Gday Keith. I went through Budget Direct online. My place cost 65K. Replacement - 125K. $625 pa incl 30K contents. Probably less on pension. gordo

[rrich]

Here, most Insurance Companies offer policies that guaranty full replacement including code upgrade as necessary.

I look at it as piece of mind and hope to God that I never need to use it.

Oh, typically insurance companies want to insure up to the value of your unpaid mortgage because that is what the lender requires.
(No, the lender is not looking out for you. They are only looking out for their money.)

[ian]

Hi Keith

Let's look at the worse case scenario ... your house is mostly destroyed by fire.
1. you'll need to rent somewhere to live while the "authorities" decide what happened and you wait for approval to demolish the wreckage. This might take 3-6 months.
2. you'll also be in the rental while your local council decides what they will allow you to build on the land. This might take another 3-6 months, or in some parts up to 2 years if the replacement house is not EXACTLY the same dimensions and shape as what was there before.
3. you'll also be in the rental while the house is rebuilt -- maybe another 6 months.
4. You'll likely need to rent or buy furniture and electrics for the rental which you'll likely send to a dumpster when the replacement house is finished.
5. decisions on type / style / finish of internal doors, taps, and bathroom and kitchen fittings can add several tens of thousands to the cost of the rebuild.

so you could be in a rental for 2 or more years while the house is rebuilt.
What you insure for needs to cover these costs.

I don't know what rental rates are in your neighbourhood, but where I used to live, 2 years renting would cost more than $100,000.

[tonzeyd]

As others have pointed out, insurance is there to cover worse case scenario generally, for eg most jewellery insurance especially on diamond rings etc generally get valued at nearly double its initial purchase price. To take into account increases in value etc. Also introductions such as fire regulations as a result of the recent bush fires Australia has experienced can significantly add to the building cost of your replacement home. Then there's also the cost of removing the rubble left behind/demolishing whats left and preparing your land to be rebuilt upon.

When valuating the true cost to replace your home and contents things to take into account which when i did my last valuation that adds up very quickly is the cost of all the fittings and bits that are in your house that you've purchased over the years. Obviously if you don't care about these things feel free to lower valuation.

As you can see there is much more than just the cost of "building a house", yes the land value isn't taken into account but making a house a home again costs alot more than cost to build generally toted by many home builders. At the end of the day, if you're really worried get a home valuation by a professional and go by that, otherwise pick a number and live with it, chances are you'll probably never use the full extent of your coverage.

[KeithP]

Thanks for the replies.
The thing that baffles me, is that most insurance companies value the house at 2.5 times the actual cost to build a new home on a vacant block.
The contents are not included in this value, only the house. I am insuring the contents for $65,000 and that is not an issue.
The RAA ( the South Australian motoring association ) who insures homes as well as cars, boats etc. came up with a replacement value of $165,000 for the house and $65,000 for contents, which looks realistic to me. Yes I would have to rent while a new house is being built etc. but that is something that I would be happy to wear. I cannot see how the remaining insurance companies would have a valuation of $417,000 - $480,000 for the building, it looks like gouging to me.

Thanks
Keith

[ian]

the quoted cost to build a new project home is generally based upon using the absolute minimum cost option for the materials used.
"Extras" like specifying timber rather than plastic internal doors, a front door with "style" rather than painted masonite, something more than one light switch and power point per room, etc will all add to the cost.
In the kitchen and bathroom alone there could easily be a $40-60,000 difference between using laminate or stone bench tops, plastic vs Blum drawer slides, laminate vs solid wood doors and drawer faces, plastic vs porcelain bathroom fittings, plain vs "fancy" taps, heated bathroom floor, noisy vs quite appliances, matching vs miss-matched kitchen appliances, the list goes on.

However, at the end of the day it comes down to your risk appetite.
But I do suggest you seriously consider where you would find the money you would need to pay the rent while your house was rebuilt. $700 per week is a very sizeable wack in anybody's language.

[kiwigeo]

I cannot see how the remaining insurance companies would have a valuation of $417,000 - $480,000 for the building, it looks like gouging to me.

Thanks
Keith

If you can build a decent sized house for $165,000 youre doing pretty well. Im about to build a new 150m2 place in the Adelaide Hills and Ive budgeted at least $450,000 for the house. Current insurance on the existing place (same size) is $450,000 for the house and $30,000 for contents.

[KeithP]

Thanks Ian,
You are making sense, I am now satisfied.

Best regards
Keith

[Pearo]

Can I suggest one thing, do not use online calulators but rather ring the insurance compan. My current house is worth way more than I paid for it based on the work I have done on it, and because of that most of the online calculators are unable to cope. Ringing around will get you can get a much cheaper rate and usually a better policy. Most companies will also negotiate on price.

[Chris Parks]

My experience insuring our home was very eye opening. I received the renewal and decided that maybe we had better give the company a call and correct what I thought were a few minor errors. By the end of the conversation they told me they were not interested in insuring our property as it exceeded the house value they were prepared to cover in any situation. I then rang a few more companies and got much the same answer so in the end I was forced to use a broker. No way would I ever have thought that our house was valued for insurance purposes at the figure they put on it. It definitely pays to update any changes as they occur to avoid problems such as this.

[Kuffy]

My mortgage lender told me an exact figure to insure the house for. Cost me 120k 9yrs ago to owner-build. Lender demanded 385k house insurance

[Blocklayer]

If you think your insurance premium is high, try getting a quote (online or by phone) with a postcode of 4873 (North QLD)

(Really, give it a go)

[KeithP]

It looks like the consensus for the value for insurance is around the $400,000 mark.
I have had the house and contents insured with APIA for the past few years, and their current valuation of my house is $416,000 and contents at $71,400 an excess of $500 & $300 with a premium of $817.
The insured value is ratcheted up a bit each year which is normal, and this year the premium jumped by $100 to $817. Which led me to start questioning the valuations.
At the moment I am looking at comparisons with other insurers.
By the way, I have had house and contents insurance for 46 years and have never made a claim.
I guess the high jump in premium is from the effect of storm and flood damage in Australia in recent times.
Insurance companies will make sure that they are not losers. APIA have quoted the highest premium of any insurance quote I have had in the past few days, which really shows how they are for the pensioners, (not).

Keith

[ian]

Hi Keith

Don't forget to put a reasonable valuation on your tools.

but this can be tricky. If you needed to replace 4 or 5 Stanley planes, you might, over 6 to 12 months, be able to purchase them for $30 to $50 each and then spend a few weeks fettling each one and adding an after market iron ... but in the event of a near total loss at age 70, would you want to be 75 when your tools were "fully replaced", or be up and running as soon as the shed was built? If the later you might want to set your tools' replacement value at what it would cost to buy new ones from mid-level manufactures like Wood River.

[KeithP]

Good point Ian.
My planes are mostly Veritas, which were obviously bought over a time frame of about 7 years. (and still likely to buy more)
I think you have summed up the insurance situation. I have always felt it unwise to under insure, but it would be equally unwise to over insure by too much.
Finding the right balance is not always straight forward. I am now comfortable with the insured values of around $400K.

Thanks for your input Ian, it is most appreciated.

Keith

[Chris Parks]

Hi Keith

Don't forget to put a reasonable valuation on your tools.



In the event of a tool claim the biggest problem will be remembering everything that was there so an inventory is essential.

[Bob38S]

In the event of a tool claim the biggest problem will be remembering everything that was there so an inventory is essential.

Easiest way to achieve this is to photograph all of your items. These days with camera phones, tablets etc it has never been easier. Copy the pix onto 2 usb sticks, why 2, keep 1 at home and keep the other at a relative's house. Should you have a total loss the offsite stick provides the proof you will require for insurance purposes.

This method also works well for any valuables you may have.

Just a thought.

[WicklowWood]

So Keith
If you built it yourself + planning + x 1.6 = your 1st offer



Sent from my SM-G930F using Tapatalk

[AlexS]

In the event of a tool claim the biggest problem will be remembering everything that was there so an inventory is essential.

Easiest way to achieve this is to photograph all of your items. These days with camera phones, tablets etc it has never been easier. Copy the pix onto 2 usb sticks, why 2, keep 1 at home and keep the other at a relative's house. Should you have a total loss the offsite stick provides the proof you will require for insurance purposes.

This method also works well for any valuables you may have.


Bob took the words out of my mouth. Did exactly this, and put everything into a spreadsheet, with purchase date & price if known, plus replacement cost. You may be surprised at how much it adds up to.

An interesting thing was that for many of the hand-held electrical tools, the cost of the current equivalent model is less that the cost of the original 20-30 years ago.

[tonzeyd]

This topic appears to be sufficiently covered, the only other thing i'd add is what someone else has mentioned. Your coverage should reflect your risk appetite and unless you're in high risk areas such as those in cyclone, hurricane, bush fire, or flood areas. Chances are your home insurance claims will come from storm damage, electrical faults causing fires or burglaries. In which case you'll be very unlucky if you suffered a total loss in either those scenarios. So it now becomes a game of chance, do you cover 100% of all your valuables/assets in the unlikely chance that you may suffer a total loss, or do you cover X% of your valuables and if in the event you do suffer a loss the savings over the years of not having full coverage covers the losses you experienced. Hope that makes sense.

Also the spreadsheet/photograph idea is highly recommended, not only to help you calculate your replacement cost of your valuables but also as a proof of ownership. Which your insurer will ask in the event of burglary.

[Chris Parks]

I did both Spreadsheet and photographs because I have an extensive collection of mechanics tools with many duplicates which a photo alone will not detail. It has been many years since I have bought any spanners etc and I was absolutely gob smacked at the prices now being charged these days.

[ian]

This topic appears to be sufficiently covered, the only other thing i'd add is what someone else has mentioned. Your coverage should reflect your risk appetite and unless you're in high risk areas such as those in cyclone, hurricane, bush fire, or flood areas. Chances are your home insurance claims will come from storm damage, electrical faults causing fires or burglaries. In which case you'll be very unlucky if you suffered a total loss in either those scenarios. So it now becomes a game of chance, do you cover 100% of all your valuables/assets in the unlikely chance that you may suffer a total loss, or do you cover X% of your valuables and if in the event you do suffer a loss the savings over the years of not having full coverage covers the losses you experienced. Hope that makes sense.

Also the spreadsheet/photograph idea is highly recommended, not only to help you calculate your replacement cost of your valuables but also as a proof of ownership. Which your insurer will ask in the event of burglary.of you down this path you need to very carefully read the details of your policy every time you renew it.

some insurers treat the scenario you describe as under insurance. You insure for 70% of the value, you suffer a 50% loss, the insurance company only pays out 35% (70% x 50% = 35%) leaving you with a 15% gap.

[Enfield Guy]

I believe over insurance can have a similar effect.

[tonzeyd]

Yep thats correct, over insurance is a waste of money as your insurer will never pay that full amount you're paying for.
Under insurance isn't an issue unless you can't afford to pay the gap, therefore its important in particular to building insurance not so much with contents insurance. IMO there's no point insuring every single item you own in the event of a total loss, value your big ticket items like machinery, tools that you couldn't bare to lose. The savings in reduction in premiums over the years could vary well cover the cost of the smaller items if you happen to suffer a loss. But as i said earlier at the end of the day depends on your risk appetite. For me I believe the potential savings is worth the effort to not get 100% coverage, as I believe the potential risk of losing everything is tiny.

[Big Shed]

Under insurance isn't an issue unless you can't afford to pay the gap, therefore its important in particular to building insurance not so much with contents insurance.


You may want to reconsider that statement

under-insurance in household insurance complaints (http://www.financial-ombudsman.org.uk/publications/technical_notes/under-insurance-household.html)

[tonzeyd]

Thanks, but i still stand by my comment.

The article itself is titled "House hold insurance complaints" not Under Insurance = Home Insurance Fraud, as far as i am aware there is not mandate to be 100% covered as insurance is optional, if that was the case I'd be on the phone to my insurance company daily to update them of my changes in coverage.

I don't know about your insurance company but I not aware of any insurance company to ask for a full itemised list of my contents. Therefore as far as they are aware I have properly valued my home and contents. So when I do go and make a claim, they don't know whether my $x coverage covers all my items or only a small proportion of my items. Its only in the event of 100% loss that I am exposed to under insurance and if that ever happens I know that I can just replace items that are not covered out the savings in premiums or not have them replaced if they are no longer required.

[ian]

FWIW, the insurance companies I've dealt with expect that household contents (and for that matter building features) that are outside what is considered normal should be listed on a separate schedule.
For example, if your house had one or more timber framed stained glass bay windows, these would need to be itemised, otherwise when the house was repaired, insurance would only pay for plain aluminium frames in a flat wall.

But of particular relevance to this forum, is how insurance companies value the contents of a shed.
"Normal" is a lawn mower, circular saw, drill-driver, cheap power sander, a few screw drivers and spanners, a green shed hand plane and 3 or 4 paint tin openers AKA chisels.
"Outside normal" is what you would find in a typical WW shed -- table saw, dusty, thicky, multiple sanders and drill/drivers, fettled hand planes (or LNs and Veritas versions), chisels which might have been bought for $5 to $20 each, but would cost considerably more to replace with ready to use tools, etc.

Likewise with photo gear. normal is a low end SLR with two kit lenses, outside normal is an mid to upper range SLR with multiple quality lenses. For example some of my Nikon lenses would cost 2 to 3 times the cost of a basic SLR kit to replace.


The question is, in the event of a loss do you want to get back to where you were quickly -- which would typically mean buying new quality tools -- or are you happy scouring the markets and ebay for the next 5 to 10 years searching for a set of elusive Berg chisels, or spending 2 months de-rusting and fettling a mediocre hand plane? When we moved here I had to value my hand tools at full replacement in the event the container they were travelling is was lost. My reasoning was; should the container be lost I would get no joy spending the next 3 to 4 years searching out and rehabbing replacement tools when the whole purpose of shipping them in the first place was to have them to hand to use.