Once again, the crucial thing to remember when insuring your residential
property is that you must insure for the replacement cost, not the market value.
This covers all aspects of the insurance. Make sure you've researched and worked
out what it will cost to rebuild your home should it be destroyed, and insure
for that amount. It's more important to cover this sort of thing than it is to
pin your insurance value to the land value - because this can't be stolen or
destroyed. Your actual land value usually only amounts to a third of your total
property value, so it's clearly far more important to focus on the structures on
the land itself.
The other thing to realise is that it is normally cheaper to rebuild damaged
property than it is to buy a new house - especially with constantly escalating
house prices. There are other considerations which make the equation slightly
more complicated as well. Let's say you have a house in a cheaper area and it
gets destroyed by fire. While the value of your house is less than in a more
upmarket suburb, the actual cost of rebuilding is the same - because materials
and labour cost the same, no matter where you build. So don't skimp on your
insurance just because your house is valued at less than it would be in a more
expensive area.
The moral of the story here is that the most important thing to do is to
insure your house for the cost of rebuilding, not the market value of your
house.
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