Take cover with home insurance

Summer once again highlighted the extremities of our harsh Australian weather. In addition to Dorothea Mackellar’s droughts and flooding rains, communities too often contend with bushfires, cyclones and severe storms; stark reminders of the need for adequate home insurance cover.

But the wild weather is not to blame for every home insurance claim. Break-ins, fire and unfortunate accidents can all lead to property and contents damage or loss.

Although often considered a grudge purchase, most home owners are prudent enough to have some building and contents cover. Unfortunately though, the Insurance Council of Australia reports more than one in five households many of them renters still have no home contents insurance, leaving them without any financial footing should the worst happen.

Additionally, many of us with home insurance may not have enough. According to the Australian Security and Investments Commission, up to 80 per cent of Australian households are under-insured by 10 percent or more.

Adequate home insurance cover should be part of your personal financial plan. Very few people have enough savings to get back on their feet if they lose their home and contents. Insurance is an investment in ‘what if’ and the best way to ensure you are prepared for life’s mishaps.

Here are our top tips to make sure your household is covered.

Sum up your home and contents

Your home insurance premium (the fee you pay each month or year) is calculated using a range of risk factors, such as weather, building materials and security, and your sum insured (the amount for which your home is covered). But slicing your sum insured to save on the premium could cost you severely in the long run if you experience a significant or total loss.

Make sure you have a high enough sum insured on your building policy to rebuild your entire home from the ground up. That includes all fixtures and fittings, such as cabinetry, lighting and floor coverings, plus fencing, landscaping, garages and sheds. Most insurers ask you to determine your sum insured while others will provide a full replacement policy, based on their determination of your cost to rebuild.

While home building cover only applies to property owners, contents cover should be taken out by both owners and renters. Many households make the mistake of calculating the second-hand value of their items when they should be looking at what it would cost to buy the same items today. Others only count big-ticket or expensive items, such as furniture, televisions and technology, overlooking clothing, cutlery, linen and other daily needs, which soon add up if all is lost.

Most insurers offer online building and contents calculators to help you with your sum insured, as does the Insurance Council at http://www.insurancecouncil.com.au/for-consumers/calculators

Review your cover regularly

Make sure your insurance cover stays in step with your life. Marriage, children and renovations can all add to the value of your home and contents. Take stock each year of new purchases, such as jewellery and expensive technology, and increase your sum insured if needed.

Check you have the right cover

The Victoria and Queensland floods of 2010 and 2011 left thousands of households high and dry financially because most insurance policies did not cover flood. Since then, most insurers have built flood cover into their policies either as standard or optional. All households should check with their council if they are at risk of flood and whether their home insurance policy covers it.

Generally, other natural disasters, such as bushfires, cyclones and storms, are covered as standard in home insurance policies and are not optional. You will, however, pay a higher premium if your home is considered at higher risk.

You should also check whether there are limits on the value of what your insurer will cover. Most insurers, for example, only cover jewellery up to a certain amount, unless you nominate specified items.

On the go

With the popularity of portable technology, it is worth considering cover for your valuables when you are away from home. Policies vary but most insurers offer portable valuables cover for items such as cameras, laptops and jewellery. Some insurers will cover items that are lost or stolen away from home as standard while others will offer it as an option for an extra premium.

Read your policy booklet

The best way to find out what your policy covers is to take the time to read your product disclosure statement (PDS). Most insurers make them available online if you have misplaced your paper version. Insurers are also required to present the information in plain English. You will find most spell out quite clearly what you will and won’t be covered for. If in doubt, pick up the phone and ask.

Ways to save

  • Combine your home and contents policies and bundle in other policies, such as car and health insurance for multi-policy discounts.
  • Ask about years-of-insurance or loyalty discounts for sticking with an insurer for a number of years.
  • Pay your premium annually rather than by the month.
  • Increase your excess (the amount you pay upfront to make a claim) to reduce your premium.
  • Look for ways to reduce your risk, like home security.
  • Shop around.

AFG Hits $100 Billion Milestone

AFG, Australia’s largest mortgage broker, passed a milestone today as its loan book hit the $100 billion mark. AFG may not have the public profile of competitors with a retail presence or an ASX-listing, but its loan book makes it comfortably the largest mortgage broker in Australia – 50% bigger than its nearest rival – and quite possibly the world.

From small beginnings it now forecasts an annual revenue turnover of more than $500m and processes $4.5 billion in loan finance each month. It is responsible for approximately 12% of all new home loans in Australia (Source: ABS and AFG statistics).

The company started out as four Perth friends with a big idea in a rented office in the Perth suburb of Subiaco. It now has offices across the country and a network of 2,100 member brokers who have helped nearly 1 million customers over AFG’s past 20 years in business.

Managing Director and one of the four founding partners Brett McKeon explains the stellar growth AFG has enjoyed: ‘Our mortgage platform business was a first for Australia. That same division is today one arm of a much larger financial services company with a wages bill of $23 million.

‘We have a successful and growing property business with $300 million of projects underway; a growing securitisation arm with over $1 billion in assets that is supported by a treasury department that has issued close to $900 million in Residential Mortgage Backed Securities to global markets over the past 20 months.

‘AFG is also a property development manager and this part of the business is thriving.

‘And in turn we encourage diligent disclosure and compliance by our members which leads to better competition and in turn better outcomes for those everyday Australians looking to secure finance.

Mr McKeon said the success of the business was driven by deliberate strategies to build AFG on sustainable market leading principles, to recruit and retain the best people in the industry and to reinvest in cutting-edge technology systems.

‘AFG actively advocates on behalf of our members to lenders, government and regulators to ensure a level playing field and encourage a competitive lending market.

‘We are one of the fastest-growing providers of holistic financial services and our brokers represent the biggest national distribution network of financial services in the country,’ said Mr McKeon. ‘This milestone is a real achievement for AFG, our members and our staff.’

Mortgage Index – December 2014

Only 1 in 50 NSW borrowers a first home buyer – latest figures

The proportion of first home buyers in NSW fell to its lowest ever level last month with fewer than 1 in 50 new borrowers (1.9%) being first home buyers. First home buyers also fell to their lowest ever level in Victoria and South Australia where they comprised just 7.4% and 6.3% of new borrowers respectively. First home buying increased slightly in Queensland to 5.2% from its all-time low of 4.7% last month, and in WA rose from a low of 17.9% in October to 19.1% in November.

By contrast, investment mortgages continue to be in very strong demand comprising 40.7% of all new mortgages processed nationally. On a state by state basis, home loans for investors comprised 50.9% in NSW, 39.8% in VIC, 35.9% in SA, 34.5% in QLD, and 29.8% in WA. Mark Hewitt, General Manager of Sales and Operations says: ‘We’ve been highlighting the imbalance in the market since the axing of first home buyer grants in several states. Last month was the closest to zero we’ve recorded for NSW, and first home buying is well below its long term trend of around 12% – 15% everywhere except in WA.’

In WA, first home buyers receive a $10k state government grant if they move into a new build property, or $3k if they buy an established property.

Non-major lenders continue to consolidate their position in home loan markets, with a significant increase in their traditional stronghold, the first home buyer market, where the proportion of loans processed for them increased sharply from 30.9% in October to 35.7% in November. During the course of 2014, non-major lenders have grown their overall market share from 24% to 29%.

Last month AFG processed $4.4 billion in home loan finance, down slightly from a record high of $4.7 billion in October, and 11.5% higher than for November 2014.

Figures processed for November were higher by 19.6% on November 2013 figures in NSW, 19.4% in VIC, 18.8% in SA, 5.7% in QLD. WA figures were 5% lower than in November 2013.

Download PDF