What Type Of Home Insurance Do I Need? - June 2022
June 30, 2022 / Written by Rich Harvey
By Gary Hunter, Insurance Expert
Whether you’re a first time home buyer and are looking to take out insurance or you want to find a cheaper policy, understanding home insurance can be difficult.
1 in 4 home insurance customers in Australia don’t know what their policy includes, according to a study by Finder.
It’s understandable that so many Australians are confused by home insurance. You want to find a good deal but spending hours reading through policy is nobody's idea of a good time.
Luckily, once you understand the basics, it’s easier to know what to look for and find an insurer that offers better value for money.
What type of home insurance do you need?
You can buy home insurance for your building, your belongings or both. What you need will depend on the type of house you own.
1. Building insurance
Building insurance protects the building itself and some other external structures such as a built-in swimming pool or granny flat. However, it doesn’t cover your belongings.
Most lenders will require you to take out some form of building insurance when you buy a home or invest in property.
If you live in or own a strata property – for example an apartment, townhouse or duplex – then your building should be insured through the strata plan, so you probably don’t need to worry about building insurance.
Renters don’t generally need to take out building insurance either but landlords may want to.
2. Contents insurance
Unlike building insurance, contents insurance protects the belongings you keep at your property. This includes your furniture, white goods, carpets, blinds and curtains.
If your building is already covered by strata insurance, many people take out contents insurance to protect their items in case they’re damaged or destroyed by an insured event such as a fire or theft.
3. Building and contents insurance
This covers your building (home) and the items you keep at the house.
If you aren’t living in a strata property and you want your belongings protected as well, a combined building and contents insurance policy is probably best for you.
Lots of insurers offer discounts for combining your cover as well.
What does home insurance cover you for?
Now that we've gone over the different types of home insurance, it’s worth going into what it actually covers.
Home insurance will pay claims for loss or damage caused by an insured event. Most insurers cover you for the following:
- Fire (including bushfires)
- Earthquake and tsunamis
- Impact damage (for example, falling trees)
- Escape of liquid (for example, burst pipes)
- Theft and attempted theft
- Malicious damage, vandalism or riots
While insurers automatically cover you for the majority of major events, there are a couple of exceptions worth knowing about.
These events are called optional add-ons. If you want to be covered for them, you’ll need to pay a little extra. You can generally do this when you take out home insurance.
1. Flood cover
Not all insurers automatically cover floods. However, if you live in a flood-prone area, you probably want to add this to your list of insured events.
2. Accidental damage
Some also don’t automatically cover accidental damage. This might be worth getting if you have younger children.
How much home insurance cover do you need?
When you take out home insurance, you’ll need to tell the insurer how much you want to insure your home for.
This can be tricky to do, as you want to insure your home for how much it would cost to rebuild it, not simply how much you paid for it.
You risk being underinsured if you don’t calculate the rebuild costs properly. For example, if you insure your home for $500,000 but it costs $650,000 to rebuild, you would have to fork out $150,000.
Luckily, there are a few ways you can avoid this.
1. Online calculators
Home insurance calculators can help you estimate the cost to rebuild your home.
It’s worth using one that references current building and replacement costs – that way, you’ll be able to get a more accurate estimate.
There are also separate calculators designed to calculate the total cost of your contents.
2. Consider the sum insured safeguard or total replacement cover
The most effective way to avoid underinsurance is to make sure your policy has a sum insured safeguard or total replacement cover.
Sum insured safeguard
This provides up to an additional 30% of cover on top of how much you insure your home for.
For example, take the example used above again. If your home is insured for $500,000, the safeguard would provide an additional $150,000, enough to pay for the full $650,000 rebuild.
Sum insured safeguards are usually available as an optional add-on with most home insurance policies in Australia.
Total replacement cover
This covers the total cost of rebuilding your home. It tends to be more expensive than a sum insured safeguard because it eliminates the risk of underinsurance.
Thinking about renovating?
If you renovate, make sure you update your insurance policy as it’s likely you will have increased the value and rebuild costs of your home.
Compare home insurance policies
Searching for a home insurance policy may not be the most fun task, but if you want better value for money, it’s worth shopping around.
Don’t just go for an insurer you know – see how they compare with others. Look at the features and get quotes from multiple brands to see who comes out on top for price. Remember, your quote will be based on factors such as where your house is built, how old it is and how much it’s worth.
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