How best to be covered
Let’s take a look at the main types of insurance available to protect people as they invest in building a new home.
Insurance, it’s not sexy. But then neither is losing tens of thousands of dollars. Any new home is a massive investment and more often than not, it involves the commitment of life savings, and life borrowings. Protecting that level of commitment is a no-brainer so let’s do it.
You can insure pretty much anything these days, but your new home deserves to be a priority. Again, research and understanding is really important here, because this is very financial. Do some reading, speak to good people and you’ll be well-prepared to be well-protected.
Lenders Mortgage Insurance (LMI)
Saving a deposit of 20% of your new home can be intimidating, and is simply unachievable for many people, especially first home buyers. That’s why Lenders Mortgage Insurance exists - The borrower (i.e. you!) takes out this insurance to protect their lender. This allows lenders to approve loans with a higher loan to value ratio, which in turn lets you have a deposit of less than 20%. Get it? The cost of the LMI is calculated according to the loan-value ratio and the value of the home. It is a one-off payment that then protects the lender for the lifetime of the loan.
Home & contents insurance
Home and contents insurance is mandatory for many mortgages to give protection against property damage. While home and contents insurance is often sold as a package, they are actually two separate insurances. Home insurance protects the structure (the bricks and mortar etc.) While contents insurance covers the belongings inside your home from furniture to the tv and computer.
Home insurance policies can cover a range of circumstances so please take the time to work out what sort of cover you need.
The Product Disclosure Statement (PDS) details what is, and what is not covered and it really is better to be safe than sorry. Do your research because insurances have different options and cover. Make sure you establish the value of your home, the amount of cover you need, exactly what will be covered and how the protection works.
How protected are you?
Some of us try, but we can’t control everything. Some of those things can threaten your home and financial stability. We’re thinking worst case scenario here - flood, fire etc. Good contents insurance protects you against these events and it is often required by lenders because if you’re protected, they’re protected too. Make sure you understand which natural disasters you’re covered against, and the areas where you’re most at risk. A bush block, for example, should have fire cover, just as a river-side block should have flood cover.
With the home itself protected, you need to think about what’s inside. While it might feel like you don’t own much, apart from the house (hello, First Home Buyers!) it soon adds up. Content insurance covers pretty much everything you own in categories including - Expensive and valuable items (jewellery, electronics etc.), furniture, clothing, household items (kitchenware, glasses etc.), and everyday use items (phone, handbag etc.).
The best way to work out the contents cover you need, is to make a list based on these categories, estimate the replacement value of everything, add it up, and that dollar figure will give you a good starting point for the amount of cover you need. And don’t forget, you might need proof, so keep receipts, take photos, and keep them safe.
Be careful about being under-insured because this could lead to a significant financial burden if you have to claim. It’s better to be fully, and safely covered.
You can lower your premiums by being proactive. Secure your home with screens, systems and smoke alarms, update your policy regularly and look at options to raise your excess in the case of a claim.
Shop around. Insurance is a financial product, and there are plenty out there offering different cover, prices and conditions. There are deals to be had so take a good look.