It’s often the little things that matter…

One of the “compulsory” forms of insurance that people with bonds have to have is Home Owners Insurance (HOI). This is insurance that covers the cost of replacing the building if it is destroyed through things like fire and floods. Usually the bank that provides the bond also very kindly arranges this insurance and the unsuspecting home owner signs the policy document along with all the other bond documents. There are at least two huge problems with this:

Firstly , while this form of insurance is compulsory for those with a bond (and is probably advisable even if you don’t have a bond) the insurance companies that the banks use tend to be very uncompetitive. If you don’t believe me then ask your short term insurance company or broker for a quote on your HOI  as part of your whole short term insurance policy. I’m willing to bet that you could see a 10-20% reduction in the premium of the HOI cover. If this is the case then it makes no sense not to move and to consolidate the cover with all your other short term insurance (just make sure you are getting like-for-like cover). While the bank can insist that you have the cover in place, they cant insist that you do it through them and you might even find that the bank insurance company is prepared to reduce their premium to match the quote from the outside insurers*.

The second big problem with the bank arranging the cover is that the premium usually comes off your bond account each month – this is a huge rip-off because you are effectively paying interest on this premium over the life of the bond. Even if you don’t end up changing the insurance provider, get the bank to take the premium off your everyday banking account as opposed to your bond account. Without even doing anything else you will knock years off your bond term and save a fortune in interest payments.

*If you do change cover, it is likely the bank will want an endorsement on the new short term insurance contract noting their interest in the insurance – this is pretty standard practice.

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