Top 4 Mistakes when Insuring a House
Getting the right house insurance is an important decision you want to get right. Here’s the top 4 mistakes we see, so you don’t make them.
1. Reducing your sum insured to save on your premium
People often think to reduce their sum insured for a lower premium. Insuring something for less than what it’s worth is called ‘under-insurance’.
This is a risky move where you’re banking that you won’t have major damage to your house that costs more than your sum insured to repair.
The idea of insurance is to put you in the same position you were in before the damage. If a fire fully burns down your house and you’re not fully insured, you could easily face being thousands (if not, hundreds of thousands!) of dollars short when you want to rebuild.
You will notice the effect of decreasing (or increasing) your sum insured actually has a relatively small affect on the premium. So you’re best off fully insuring your house, as it might only cost around $50 more to do.
2. Not thinking about an accurate sum insured
People often expect their insurer to know how much their house should be insured for. The reality is that you will need to come up with an approve a replacement cost estimate for your house.
Our quote calculator will give you a ‘base’ replacement sum insured from a fixed amount of rebuild cost we apply per square metre. You’ll then need to fine-tune this figure to one you think is enough to fully rebuild your house.
If you’re not sure there’s some useful tools available to help. The Cordell Sum Sure Calculator uses council data on houses to give you an estimate, and works for most house across New Zealand.
One of the most common mistakes people make is not considering all the factors in the sum insured figure. The most common being demolition costs, which can be significant. You should also take in account value of outbuildings and other things like fences, retaining walls or swimming pools. Lastly, it’s a good idea to allow for the affect of building cost inflation on top of this.
3. Not choosing the right excess
People can be caught out by selecting excesses that are either too high, and low.
Sometimes we see people select a higher excess like one over $1,000, but then when they make a claim find it’s too high and they struggle to afford to pay it. When selecting your excess ask yourself: “how much money can I comfortably afford to stump up if something goes wrong?”. If the answer is less than $1,000, you should pick an excess below this.
There are also people that tend to select excesses that are too low. If you keep enough cash on the sidelines and you don’t claim for smaller losses, you can take a higher excess to save on your premium. If you wouldn’t bother claiming for anything less than $1,000; you shouldn’t spend your money insuring it.
4. Choosing the cheapest or most expensive policy
Cheap doesn’t always mean the best value for money. Generally cheaper policies tend to have lower levels of cover. But this isn’t always the case, so it’s important you do the work to compare cover between insurers with the premium you’re paying to see where the best value is.
By the same token the most expensive policy doesn’t necessarily mean the best cover for your needs. You could be paying extra for cover you don’t need. Do you need extra cover with a higher limit for swimming pools if you don’t have one?
Taking the time to find a suitable policy could save you hundreds.
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