Whether you’re already a home owner or in the process of becoming one, you’ve more than likely heard of buildings insurance. While the bank requires you to have insurance for your home, it’s also in your best interest to protect it. After all, buying a home is probably the biggest purchase you’ll make in your life. To help navigate the often complex and overwhelming space of insurance, we’ve outlined three things to help you find the best insurance for your home, at the best possible price.
1. Shop around
You can insure your home with the bank that gave you your home loan
When you buy a home with the help of a loan from the bank, the bank requires you to have insurance. Banks often have a preferred insurance partner or they have an internal insurance division that offers insurance. It’s often seen as a simple route to go down because it means you don’t have to go out there and get quotes yourself, and only one debit order goes off each month.
You can insure your home with an insurer of your choice
While the insurance premium you’re quoted on seems relatively small compared to your monthly loan repayment, it’s always a good idea to shop around to see what other insurers would charge you. Grab a couple of quotes from a few different insurers. Remember to compare the policy wordings to make sure that you’re getting the cover you need – take a look at things like exclusions, additional excesses and upfront admin fees. The bank will probably also want a copy of the policy to make sure that it meets their needs in terms of insurance.
TIP: When comparing quotes keep the excess amounts the same so that you’re comparing apples with apples.
If your home has been insured for a while already, it wouldn’t hurt to get a couple of quotes from other insurers to see if what you’re paying is still in the right ballpark. In a recent survey of Naked clients, we found that almost half of people who switched to Naked managed to save more than 20% on their home insurance. But we also found that 42% of people who switched had been with their previous insurer for more than five years before they switched to Naked. That’s a long time!
TIP: When comparing quotes keep the excess amounts the same so that you’re comparing apples with apples.
2. Insure your home for what it would cost to clear and rebuild
When people insure their home, many make the mistake of insuring them for their market value and not their replacement value.
Market value: This is the going price of your home – the amount you’d likely get if you sold it in the open market. A home's market value is typically affected by its location, surrounding properties, and other factors such as economic conditions, etc.
Replacement value: This refers to the amount it would cost to rebuild your home from scratch. Beyond the more obvious construction costs, things like demolition, site clearance, municipal and professional fees, as well as the cost of finishings in the home will be taken into consideration.
Insuring your home for its market value can mean you over- or under-insure your home. While underinsurance has more severe consequences – including future claim payments being reduced below your needs – over-insuring your home can mean you’re paying more premium than you need to. Both should be avoided.
TIP: Calculating the replacement cost of your home can be overwhelming. Something that helps here is to break down the cost into three different calculations:
1. Calculate the cost of rebuilding the shell of your home from the ground up, i.e. the bare-bones structure, excluding the finishings.
2. Add the costs for any specific items such as your pool, a fancy fireplace, or super expensive imported wallpaper, etc.
3. Add the costs of earth moving work into your calculation. For example, if a flood destroys your whole property, you should have enough cover to redo the land compacting, etc. This could be especially costly if you have a sloping piece of land. A simple rule of thumb is to add 20-30% to the value.
3. Play around with the excess and see how it affects your monthly premium
Many home insurance policies have a set excess that you will have to pay when you claim. You should make sure that you know what this is since you have to pay it in order for your claim to be processed.
With Naked, you can play around with your excess on the app. Choosing a higher excess might be appealing because it automatically lowers your monthly premium.
But anything can happen: your geyser might burst or a storm could send some windows crashing down. You would need the excess amount on hand in order for the claim to be processed. One way to select an excess that suits you is to figure out the maximum amount you can comfortably afford to pay out of your pocket if you had to make a claim tomorrow.
While the process of buying a home can be long and tedious, spending time looking for the right insurance at the right price can save you one day in the event that something bad happens.
TIP: If you’re looking for building insurance or just want to compare what you’re currently paying with a new price, you can hop onto our app or website and get a quote in a couple of minutes. You don’t have to make a single phone call and can buy on the spot if you like the price you see – we’ll even help you cancel with your current insurer.
