This post is brought to you by Understand Insurance
Insurance is a funny product. It seems like a big fat waste of money until you need it. But when you need it, it then becomes invaluable. We bought our home six years ago. Like many people, our family home is by far our largest asset. However, our mortgage is by far our largest debt.
No-one wants to think about it, but what if something were to happen to our house? Without home and contents insurance we would be left with a small (and I mean teeny tiny) block of land in Sydney’s inner west and we would still be left to pay our mortgage. Yes, no couch to sit on, no TV to watch, no clothes to wear, no house to live in but our debt would still exist and the bank would still want its monthly repayment! For us it would be nothing short of financial devastation, throwing away everything that we have worked so hard for. Not to mention the stress and strain on our family would be unimaginable. That is why we have home and contents insurance.
However, recently when our home and contents insurance bill came in, I wondered if we had enough? You see, even if you have home and contents insurance, you cannot just set and forget, insuring for the same amount year in year out. Things change and the last thing you want is to get yourself in a situation where you need your insurance, but find out you do not have enough.
So how do you figure out how much home and contents insurance is enough? This is how I went about it …
Firstly, I split my home insurance and contents insurance into two separate decisions. Even though they are often bundled together, they are two separate things. Home insurance, covers loss or damage to the building you own. Contents insurance covers costs associated with loss or damage to your possessions.
How much home insurance do I need?
If we ever needed to rebuild our house there is more to it than just getting a pile of bricks and tiles and shoving them together. There are lots of costs involved, some of which you might not think about. Things such as the cost of clearing the land, alternative accommodation, architects fees (if needed) and fees for lodging plans to council. The costs really add up fast!
We used an online calculator to see whether our current level of insurance was roughly appropriate. It was pretty easy, they just ask you a few questions about your house and it gives you an estimate of how much it might cost to rebuild. (Click here to use the building calculator from Understand Insurance.)
The good news was the amount we are currently insured for was about right according to the Understand Insurance calculator 🙂 Happy days! (Note: if you live in a high risk area such as a bushfire prone region, you might want to talk to the council and see if you are affected by new building codes should you need to rebuild. This might increase your costs.)
How much contents insurance do I need?
Like most families we have a lot of contents!! Lots of it we probably don’t need. Anyway, for this component we went from room to room and wrote down what we would have to replace if something happened. Beds, couches, the TV, computers (yep, in a bloggy/gamer household we have more than one, it prevents fights!), clothes, the fridge, washing machine, dryer – the list was a bit endless!!! Then we simply estimated how much it would cost to replace all our major items on the list. It is surprising how much it adds up!!! To make the process even easier, you could use a household inventory check list such as the one from Understand Insurance. Click here to see their inventory check list. This is the way I will be doing it from now on :-).
Another way to check how much your contents should be insured for is to use a contents calculator. Click here to see the one from Understand Insurance. We checked what the contents calculator told us, against our estimate and they were pretty similar. Happy days!
After using the above methods and having a good logical think about it all, I am pretty comfortable that we are adequately insured, should the worst case scenario happen. Now the key is not to just ‘set and forget’ our home and contents insurance. But to regularly review it and make sure we are correctly insured. As one day, we might just need it.
This sponsored post is brought to you by Understand Insurance – a financial literacy initiative of the Insurance Council of Australia, the representative body of the general insurance industry. To find out more about insurance and to use their calculators, visit their website here.
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The information contained in this post is general in nature and does not constitute financial advice. Please see your financial advisor for advice specific to your individual circumstances.