Home and contents insurance

[Gockie]

I just came home and found a letter from GIO about the home and contents insurance renewal - I guess 12 months is up.

The whole insurance comes to approx $1800 for a year, with $500 excess. While I'd keep the home insurance in case of catastrophe, (my suburb is surrounded by national park - we are just out of the bushfire zone - when I enquired about joining the local volunteer bushfire group the person at the other end of the phone line said I couldn't because the zone officially stopped about 8 doors further down the street ).

Anyway, I'm thinking about dropping the contents insurance, (costing us over $300 a year) because if we did lose our contents or we were robbed, we don't really have that much stuff of value.
The stuff of value would be cameras (and they aren't especially high end anyway), a computer or two, a few regular push bikes (again, not high end in any sense of the word), a mobile phone or two, a bed mattress, a dining table (which was originally a $300 secondhand purchase from ebay in any case), a fridge, a washing machine, shoes and clothing, a few luggage bags, books and this iPad. We don't have a valuable music, video/DVD, jewerly or fine art collection.
The TV is not a LCD or plasma, it's a solid 70+kg CRT thing.

In terms of neighbourhood, we live in a great area - there's never been any theft that I know of except somebody breaking into cars to take fairly worthless things (why bother). There's a $500 excess anyway on claims so once we pay that, there's probably virtually nothing left to pay on! Apparently we are insured for $74k of contents but I guess we'd only get that if the whole building was destroyed.

I'm sure if the worst was to happen, family and friends would come to the rescue for any essentials in the short term. There's usually someone looking to give away a bed frame, furniture, sofas and whatnot. I can easily replenish the wardrobe and kitchen contents. I don't watch tv (I can go for months without it) so I wouldn't care too much if it was stolen or destroyed.
In the garage we have garden maintenance equipment etc. but I'm sure we could get the essentials from neighbours or from gumtree or from somebody else upgrading.

Anyway, has anybody else put this much thought into their home contents insurance and decided it was or wasn't worth it?

Btw, I personally would drop the sum insured of the house too - they reckon $428k? I think we could do a brick 2 storey project home on this site for $350k or less. (ATM this is a weatherboard single storey home with two living areas and a garage underneath). Btw I'd upgrade to brick/brick veneer 2 storey if I had the chance in a rebuild situation.

What are your thoughts? Is the contents insurance unnecessary?

Cheers.

 

[Perp]

Anyway, I'm thinking about dropping the contents insurance, (costing us over $300 a year) because if we did lose our contents or we were robbed, we don't really have that much stuff of value.

I understand your thinking, and I don't think it's crazy not to have contents insurance, but I would say that most people vastly underestimate what it costs to replace what they own. Every person probably owns a few hundred $ worth of underwear, for a start. Your utensil drawer in the kitchen, your bed linen, your pantry items, your cookware, mattresses, appliances - it really quickly adds up. (I've done it twice in the past 5 years due to floods.) But that's your choice, if you're happy to have to cough up to replace everything at once.

Btw, I personally would drop the sum insured of the house too - they reckon $428k? I think we could do a brick 2 storey project home on this site for $350k or less.

Danger, Will Robinson!

You have to insure for the replacement cost of precisely what you have, not what you'd be happy to replace it with, or risk being deemed under-insured.

We had a home that was insured for $620K. I thought we were way over-insured; it was large-ish - 6 BR - but just a brick and tile pretty ordinary home. Built in the early '70s and significantly enlarged in the '80s.

The quantity surveyor, post-claim, estimated it would cost $890K to replace. A lot of the reason was that they base it on the cost of building exactly what was there, and a lot of the materials and methods aren't used any more, and even though those materials and methods are now considered inferior, they would be more expensive to do it that way now because the materials and expertise aren't readily available.

So if it costs $420K to rebuild your house as it is (rounded to somewhat simplify the maths), and you decide only to insure for $350K, you run a real risk of being found to be under-insured; you've only insured 5/6 of your house. If you have a total loss, it doesn't matter so much, as you'd get $350K, and you think you'd be satisfied with that, but what if you have an event that does $300K damage to your house? (And trust me, that's not hard. )

Your insurer is only going to pay you $250K for the $300K damage, because you only insured 5/6 of your house.

Worse: if you are found to have deliberately under-insured, it could invalidate your policy altogether and you'd get nothing.

 

[Jaggannath]

What Perp said is perfect, kudos coming your way. I'm not a brand-conscious buyer, and I despise fashion, and I've calculated I have over $15k in clothing alone. Utensils and kitchen appliances are a further $15k, and as you start to add it up it really does count.

Also, I am aware of insurance companies doing what Perp discussed and paying the insured percentage of the replacement house... it's best not to scrimp on something that will hopefully protect/limit the hardship for you from what is one of the worst things that could happen to you.

 

[Gockie]

Thanks peeps.
Anyway, I guess the best thing for us to do is to go get some quotes and see what they all offer...

Perp, in your case you needed the insurance - 2 floods in 5 years! Yikes!

But I may never have that major catastrophe. I know the firies will come if there's a bushfire (and maybe I shouldn't put this in writing but a fire will most likely take other homes in the neighbourhood well before mine!)

Major hail or storm? Maybe, but unlikely.
I suppose I have a 1 in close to 100 year chance of any natural disaster destroying my place?

We do get water running through our backyard that flows into the neighbours backyard - it's a lot when there is a downpour - and we have had no problems in the 6 years of living here (at least no known problems anyway touch wood). Anyway our neighbour on the low side has an underground water storage or pipe system thing to cope with all the water (I don't know all the details but he used to work for Sydney Water so I guess that's where he got that idea from).

Anyway, if most of our house was destroyed I'd want to knock it down and build a completely new project home from scratch. Weatherboard is too cold in winter and too hot in summer. Perp, I do understand the argument for the sum $ insured and the 5/6ths payout if we don't insure it for the full replacement cost.... Crazy they wouldn't give us the full $350k payout if $350k worth of damage is done to a $428k valued home and then let us do a complete new build.

Anyway, I guess if I want to save, I have to shop around.
Cheers.