Horizon Bank Home Buildings & Contents Plus: 25 Safety Net Meaning
The Horizon Bank Home Buildings & Contents Plus policy includes a “25 Safety Net” feature, which means that if your home is underinsured at the time of a claim, Horizon Bank will increase the sum insured on your buildings or contents by up to 25% to cover the shortfall, provided certain conditions are met. This article explains exactly what the 25 Safety Net covers, how it works, its limitations, and how it compares to other underinsurance protections.
Background: Why Underinsurance Happens
Home insurance policies require you to insure your home and contents for their full replacement value. If you underinsure—for example, you insure your home for $400,000 when it would cost $500,000 to rebuild—you face the “average” clause. This clause reduces your claim payout proportionally. For instance, if you insure for 80% of the rebuild cost, the insurer pays only 80% of any claim, even for a small loss like a burst pipe.
Underinsurance is common because people often confuse the market value of their home (what it would sell for) with the rebuild cost (what it would cost to reconstruct). The 25 Safety Net is designed to soften the blow of underinsurance, but it does not eliminate the need to insure accurately.
How the 25 Safety Net Works
The 25 Safety Net is a built-in feature of Horizon Bank’s Home Buildings & Contents Plus policy. Here is how it operates in practice:
- Automatic increase: If you make a claim and your sum insured is less than the actual rebuild or replacement cost, Horizon Bank will increase your sum insured by up to 25% to cover the extra cost.
- Applies to both buildings and contents: The 25% increase applies separately to the buildings sum insured and the contents sum insured.
- No extra premium: You do not pay an additional premium for this feature; it is included in the policy.
- Claim-based: The safety net only activates when you make a claim. It does not automatically update your sum insured between claims.
For example, if your home is insured for $400,000 but the rebuild cost is $450,000, the safety net would increase your cover to $500,000 (the original $400,000 plus 25% of $400,000 = $100,000), which covers the shortfall. However, if the rebuild cost is $550,000, the safety net would only cover up to $500,000, leaving you $50,000 out of pocket.
Conditions and Limitations
The 25 Safety Net is not a blank cheque. It has specific conditions and exclusions you should know:
- Underinsurance must be unintentional: The safety net does not apply if you deliberately underinsure your home or contents.
- Maximum 25% of the sum insured: The increase is capped at 25% of the original sum insured, not 25% of the actual cost.
- Applies to the sum insured, not the claim amount: The safety net increases your total cover, not the payout for a specific claim. So if you have a partial loss (e.g., a kitchen fire), the safety net increases your overall limit, and the claim is then assessed against the increased limit.
- Does not cover all types of underinsurance: If you underinsured because you failed to disclose a significant home renovation, the safety net may not apply.
It is also important to note that the safety net does not protect you from the average clause entirely. Some policies apply the average clause first, then the safety net. Horizon Bank’s product disclosure statement (PDS) will specify the order of application, but generally the safety net is applied to the sum insured before the average clause is calculated.
How to Choose the Right Sum Insured
Even with the 25 Safety Net, you should aim to insure your home and contents for the full replacement value. Here are practical steps to get it right:
- Calculate rebuild cost: Use a building cost calculator or get a professional valuation. The rebuild cost is not the same as the market price—it includes materials, labour, and demolition costs.
- List your contents: Walk through each room and estimate the replacement cost of every item, including furniture, electronics, clothing, and appliances.
- Review annually: Update your sums insured each year to account for inflation and any new purchases or renovations.
- Consider a professional valuation: For high-value homes or unique properties, a professional valuation is worth the cost.
If you are unsure, err on the side of over-insuring slightly. The premium difference is usually small, but the financial impact of underinsurance can be huge.
Common Problems and Misconceptions
Misconception 1: “The 25 Safety Net means I can insure for 25% less.”
No. The safety net is a safety net, not a discount. It only helps if you accidentally underinsure. If you deliberately insure for less, you may not be covered.
Misconception 2: “The safety net covers all underinsurance.”
No. It only covers up to 25% of the original sum insured. If your rebuild cost is 40% higher than your sum insured, you will still be out of pocket.
Misconception 3: “The safety net is automatic and always applies.”
No. It applies only when you make a claim and only if the underinsurance is unintentional. Horizon Bank will assess each claim individually.
Common problem: Not updating sums insured after renovations. A common reason for underinsurance is failing to increase your sum insured after a major renovation, such as adding a second storey. The safety net may not cover this if you failed to notify Horizon Bank of the renovation.
Comparison with Other Underinsurance Protections
Horizon Bank’s 25 Safety Net is similar to features offered by other Australian insurers. For example, some insurers offer “New for Old” replacement cover, which replaces damaged items with new ones regardless of age, while others offer “Replacement Value” cover that pays the cost to replace items at current prices. The 25 Safety Net is specifically about underinsurance, not about the type of cover.
Some policies include a “Sum Insured Plus” feature that automatically increases your sum insured each year by a fixed percentage (e.g., 5%) to keep up with inflation. The 25 Safety Net is different—it only activates at claim time.
When comparing policies, check:
- Does the policy have an average clause? (Almost all do.)
- What is the percentage of the safety net? (25% is generous; some insurers offer only 10%.)
- Are there any exclusions to the safety net?
- Does the safety net apply to both buildings and contents?
Costs and Value of the 25 Safety Net
The 25 Safety Net is included in the premium—you do not pay extra for it. However, it is not a reason to reduce your sum insured. The cost of home insurance is primarily driven by the sum insured, the excess you choose, and the level of cover (e.g., accidental damage, flood).
To get the best value:
- Choose a higher excess to lower your premium, but make sure you can afford the excess if you claim.
- Bundle buildings and contents with the same insurer for a discount.
- Ask about discounts for security systems, smoke alarms, or claims-free history.
Remember, the safety net is a safety net, not a reason to underinsure. The premium savings from underinsuring are usually small, but the financial risk is large.
Alternatives and Additional Options
If you want more protection against underinsurance, consider:
- Choose a policy with a higher safety net percentage: Some insurers offer up to 30% or even 50% safety nets.
- Opt for “Sum Insured Plus” or automatic indexation: This automatically increases your sum insured each year, reducing the risk of underinsurance.
- Consider a “Total Replacement” policy: Some insurers offer policies that pay the full cost of rebuilding or replacing, regardless of the sum insured, but these are rare and usually more expensive.
Read the product disclosure statement carefully to understand exactly what your policy covers and what it excludes. If you have any doubts, contact Horizon Bank directly.
Frequently Asked Questions
Does the 25 Safety Net apply to both buildings and contents separately?
Yes. The 25% increase applies separately to the buildings sum insured and the contents sum insured. So if your buildings are underinsured by 20% and your contents by 30%, the safety net can cover both, up to 25% of each respective sum insured.
If I have a claim for $10,000 and my sum insured is only 80% of the rebuild cost, how much will I get?
First, the safety net increases your sum insured by 25% (so it becomes 100% of the rebuild cost). Then the average clause is applied. In this case, because the sum insured now equals the rebuild cost, the average clause does not reduce your payout, and you would receive the full $10,000 (minus your excess).
Can I use the 25 Safety Net to reduce my premium?
No. The safety net is not a discount mechanism. You must still insure for the full replacement value. If you deliberately underinsure to save on premium, the safety net may not apply, and you could face a reduced payout.
Does the 25 Safety Net cover underinsurance due to renovations?
It depends. If you failed to notify Horizon Bank of a renovation that increased the rebuild cost, the safety net may not apply because the underinsurance could be considered intentional or negligent. Always inform your insurer of any renovations.
How do I know if my sum insured is accurate?
Use a building cost calculator (available from many insurers and building associations) or get a professional valuation. For contents, do a room-by-room inventory with replacement costs. Review your sums insured at least annually.
What happens if my claim exceeds the 25% safety net?
If the actual rebuild cost is more than 125% of your sum insured, the safety net will not cover the full shortfall. You will be responsible for the difference. This is why it is crucial to insure accurately.
Related
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