Home Insurance Smart Guide

2. Home contents

What you'll learn in this step: you may be surprised at how valuable your belongings are.

Home contents insurance covers you for loss of, or accidental damage to, your belongings, whether youre living in your own home or renting a place.

In deciding whether you need contents insurance, ask yourself whether you could readily afford to replace items such as whitegoods, electrical products and your entire wardrobe in the event of a fire, or something such as your stereo or TV should you be burgled.

Replacing possessions can be a surprisingly costly exercise it was probably relatively painless buying them one by one, but its a different matter if fire or theft means you face the prospect of replacing numerous items at once.

And it's easy to underestimate the value of your belongings. Sit down to draw up a list and you might remember the stereo but forget the CDs you play on it or not realise just how many CDs youve now accumulated.

The best way to work out the value of your contents is to walk through your home, room by room, itemising everything. Don't forget to check the garage and the garden shed as well. Then visit local retail stores and check advertisements in newspapers and magazines to get an idea of the replacement costs. Add up the items on your inventory and youve got the sum you should cover.

Back this up by taking photographs of your possessions as a further reminder and as a form of proof of ownership should you ever need it. Make sure to keep a copy of your inventory and photographs outside your home if theyre lost in a fire they wont be much help in arranging replacement of your contents.

Valuables

As well as insuring a lump sum figure for your home contents overall, you should "specify" certain valuable items under your policy, such as jewellery, art, antiques and other valuables.

Each insurer has its own rules about types of items or the value above which you should specify items (or even insure them separately), so check the policy.

Let's say you own a Persian carpet worth $10,000. If it's lost in a fire but not listed as a specified item, you might only get the standard maximum cover for a carpet perhaps $2000. If it's a specified item, you're likely to get the full value.

Proof of ownership is vital when insuring valuables. This might involve a receipt, a recent valuation or a photograph, or, ideally, a combination of all three. A video can be a good idea, showing the items and any identifying marks. Photographs and/or video are especially important if the item is a gift or family heirloom and you have no other way of proving you possessed the claimed item.

Portable items

You may also want to top up your policy so certain "portable" items such as cameras and mobile phones are covered even when theyre outside your home.

Most standard home and contents policies dont cover valuables lost outside the home, even if you have specified them. If you want this sort of cover, youll have to specify this within the policy or even take out a separate portable valuables policy.

New for old

Consider whether you want your insurance policy to replace your lost, stolen or damaged goods with new items or merely recompense you for their aged value.

A "new-for-old" policy will replace the goods with a new item of the same type, whereas an "indemnity" policy will pay out the depreciated value of what you have lost. The premium may be cheaper for an indemnity policy, but you'll have to find the difference between the payout and what it costs to replace the item anyway.

Other peoples stuff

Most policies cover only the person named in the insurance policy along with family members living permanently in the house. Be aware that the definition of family member could exclude grandparents or grandchildren living with you.

If you live in a share house, usually each flatmate needs to arrange their own insurance. Alternatively, you can seek to have all the occupants' names on the policy.

Tools of trade

Your insurer will usually cover you for the tools of your trade under your contents policy. However, check whether youre covered for replacement cost or a specified limit.

Home office

Your contents policy will probably be sufficient to cover a home office computer, modem, fax and printer, as long as you alert your insurer to your situation. However, business stock stored at home generally isnt covered.

If your business is a major source of income, or you have a lot of equipment, you should consider commercial insurance.