Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
A Typical Home and Contents Insurance Policy
Ever wanted to know what your typical home insurance policy looked like?
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Insurance policies can be quite long and complex to understand but it's important to know what to look for so you're not left out of pocket.
The policy has many elements that outline the:
- Property that is covered
- Events that are covered
- Events that are excluded
- General conditions
- Schedule and policy details, for example, name and address of the policyholder
Home insurance is generally divided into two sections based on just what it is that is being insured—the home building or the home contents. Typically, the home contents section will attract far higher costs than the home buildings section, mainly due to the much higher volume of claims and of policy administration costs they incur.
To minimise the possibility of misinterpretation, home insurance policies must define exactly what is meant by the terms buildings and/or contents. Many of the clauses of such definitions are in line with common sense, but others may seem borderline or even counterintuitive. Therefore, it is all the more important for personal lines insurance professionals—as well as any insurance intermediaries dealing with personal lines - to be confident in their knowledge of product coverage so that they may provide accurate and appropriate advice to their clients.
A home insurance policy's definition of the term buildings will typically include:
- Residential buildings, residential flats, and may include any professional offices or surgeries in those buildings
- Domestic outbuildings such as sheds, garages, carports and pergolas
- Fixed coverings to walls, floors or ceilings. In Australia, these usually do not include fixed carpets (see below for clarification), curtains or internal blinds
- walls (including garden and retaining walls), decks, fences and gates
- Infrastructure for services including gas, electricity, water, phone and Internet
- Built-in items such as ducted air conditioning, in-ground swimming pools, heating oil tanks, water tanks, etc
- Fixed appliances which are permanently connected to the electrical, gas or plumbing systems such as air conditioners, dishwashers, fans, hot water services, light fittings, room heaters and stoves
- Blinds or awnings on the outside of the buildings
- Permanent structures on the property used for domestic purposes—for example, TV antennas, paved paths and driveways, clothes lines, satellite dishes, built in barbeques
It may seem strange that fixed carpets are usually not regarded as part of the definition of buildings, but there is a very simple reason: carpets are subject to many claims such as water damage and burns. By classifying carpets as contents, insurers obtain a higher cost because the cost for contents is much higher than that for buildings.
Insurers vary considerably in the ways in which they define what is meant by contents, however the definitions will usually include household goods and personal effects, or more specifically:
- Furniture, linen, home wares
- Carpets (fixed or unfixed), (in NZ, this is only carpets that are not glued to the floor), curtains and internal blinds
- Portable domestic appliances, home computers and accessories
- Swimming pools, saunas and spas that are not permanently installed, including accessories
- Clothing and personal effects
- Valuable items of jewellery, silver gold etc (subject to a monetary limit and further defined in most policies)
- Paintings (subject to a monetary limit)
- Projectors, screens and photographic equipment
- Processed film, slides etc
- Tapes, cassettes, discs, software etc
- Tools and equipment
- Sporting equipment (subject to a monetary limit)
- Money (subject to a monetary limit)
- Motor vehicle accessories and spare parts not installed in the vehicle
- Surfboards, sailboards, surf skis or watercraft under a specified length. Some insurers only cover non-motorised watercraft, while others will cover watercraft under a certain horsepower
- Unregistered golf buggies, mowers, wheelchairs, mobility scooters
- Other household goods that are not used for earning income
- Contents owned by the insured’s children that are left with the insured while the children are abroad
- Goods used for earning income at the situation (within defined limits set out in the policy) such as office and surgery equipment at the situation (within defined limits, otherwise such items should be insured under a commercial policy).