I’m not sure if today’s blog is necessary or if it is a common oversight.
I have seen it from a couple of my clients, and thought I would share this information in case there are more out there that could benefit from knowing this.
It’s relating to home insurance. When you first take out your policy, chances are you insure your house for an amount that is equal, or close to, the value of the property. No problem.
However, house prices increase over time. In fact, the increases over the last 5 years have been significant. My house has at least doubled in value. More since we have done significant home improvement work.
Let’s assume you bought a house 5 years ago for $500,000 and it is now worth $900,000. If an earthquake or fire happened when you first took out your home insurance cover, you would pretty much have been covered for the cost to replace the property.
But five years later, your house may now be worth significantly more than the insurance cover.
Your insurance policy does not increase the level of cover based on your house price increases. You have to actively increase your sum insured if you still want the total value of your house insured.
Otherwise, if the worst happens, you may be out of pocket a significant amount.
You may know this and still choose not to increase the value of your cover and take on the risk yourself.
Or maybe you realise how this works, but you haven’t realised how much your house price has increased. It pays to keep an eye on these things.
I have just seen a few people not know that they needed to increase their cover as the value of their house increased, which has left them exposed to more risk than they realised. So if I have helped one person realise this is even a thing then I’ll be happy.
Note
It appears there is some confusion in the reader comments. When I am talking about your property and your house price I am referring to the cost of your property/house/building (not the land). The price of the house is the price of your house - What it costs if it were to be rebuilt. The market price or selling price is something completely different and not what I am referring to here. You will generally only need to insure your house, not the land.
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