The insurance industry did until recent years issue policies to cover your home on the basis of indemnity, this meant that if your home was lost they would pay to you what effectively was the market price of the buildings less the value of the land which of course still remains.

Things have changed and now most insurance companies issue policies for domestic residential properties on a replacement basis.

In the case of total destruction of your home, replacement conditions allow you to rebuild the home in the same manner as it was prior to the loss but of course in brand new materials.

So when arriving at the sum insured that you have on your policy the first thing you need to be aware of is the new building cost of such a home. This will not necessarily have any comparison with the price you paid to purchase the land and the home currently standing at that time.

Rebuilding costs should include the full costs associated with building the home and outbuildings including foundations, removal of debris, architects, surveyor, engineer and legal fees, cost of renting (or loss of rent if tenanted) if the home is unfit to be lived in whilst damage is repaired. The maximum claim for rent is 12 months.

The maximum that the insurance company will pay out is the sum insured on the policy - so if all of these things have not been addressed when deciding the sum insured, you may not receive from a claim settlement all that you have lost.

Another point well worth remembering is when you are purchasing a home. Conveyancing laws in most States set out who is responsible for the insurance of domestic properties during the course of a purchase but the prudent advice given in most states is arrange your own insurance through your agent as soon as you sign the contract.

Make sure your policy covers you against damage to visitors or anyone on your property. Householders policies will usually provide a Legal Liability section and this provides cover against loss or damage to the general public arising as a result of your negligence on or about the property.

Many companies grant a $5,000,000 cover automatically and provide for the option of you choosing to increase the amount, but a number of policies are now providing at least $10,000,000 as the standard cover.

If you are purchasing a property as a rental investment property, there are a couple of areas of the insurance policy that you need to be aware of and these are definition of 1. "The Building" 2. "Unoccupancy" and 3. "Malicious Damage".

1. Not all insurance companies will offer insurance once they know that the property will be tenanted and of those who do, a good percentage will exclude cover of carpets, curtains and light fittings or will limit the policy to a small amount of the sum insured.
2. All policies will have a condition which suspends cover if the premises are left without an occupant for a specified number of consecutive days and if you have a long period without a tenant and you do not tell the insurance company then in the event of a claim there may be no claim.
3. Malicious damage is part of the policy but there will usually be an exclusion in the policy which says that there is no cover for malicious damage occasioned by a tenant or the tenants guests.