What you should know about choosing home insurance

5-minute read

What you'll learn

• What’s included in home insurance?
• Insurance cover for your home
• Insurance cover for your personal items
• Making an informed decision about your insurance
• Types of home insurance policies
• Finding the best level of cover for you
• What’s covered in a standard home and contents policy
• Common questions asked
• Other things to consider with home insurance
• It’s important to review your cover regularly
• Make an informed decision

 

What’s included in home insurance?

Home insurance (also called property or home building insurance), as well as contents insurance, is an important aspect to consider if you own or are buying a home. It could be a financial helping hand if something happens to your home or belongings.
 

Here is a basic breakdown of the different types of home insurance and what they typically seek to cover:

• Building insurance covers the physical building structure, including permanent fittings and fixtures.
• Contents insurance covers personal possessions at the home.
• Home and contents insurance combines the two covers above with one premium, to cover the building and your personal belongings.
• Contents insurance covers your belongings while renting.
• Landlord insurance covers your investment property and any items you provide for your tenants to use (such as a clothes dryer).

We’re focusing on homeowners in this article, so here are some practical points you might want to consider when choosing the most appropriate building and contents insurance cover.

Insurance cover for your home

Whether you’re the new owner of a waterfront mansion or a cosy inner-city terrace house, building insurance may be a worthy investment. If the unexpected should happen, your insurance is there to help you get back on your feet quickly… but it’s crucial to choose a level of cover that’s appropriate for you, your property and your circumstances.
 

Building insurance is designed for freestanding, terrace or semi-detached owner-occupied properties. It covers the cost of rebuilding or repairing your home from damage caused by events like fire and storms. It typically covers the physical structure of your home, as well as any permanent fixtures like kitchen cabinets, plumbing and built-in wardrobes.
 

Depending on the policy, it may also include legal liability for injuries to anyone visiting your property.
 

Remember, what’s covered under a policy may be different for each insurer, so always read the Product Disclosure Statement (PDS) to make sure the policy includes what you need.

Who is responsible for building insurance in apartments?

If you live in a strata title apartment (the majority of apartments in Australia are strata title – you can generally check with the executive committee of your building or managing agent to confirm), the building will be covered by residential strata insurance (also known as body corporate cover).
 

This type of cover is mandatory in every state and territory in Australia. The cost is shared between all the owners and is generally included within the quarterly strata levies. However, it is important to check with your body corporate if there is anything within your home buildings that falls within your responsibility as some fixtures may not be covered by the body corporate’s insurance policy.

Residential strata insurance does not cover your personal belongings, however. It's your responsibility to insure your personal items in your home.

Insurance cover for your personal items

If you want to cover the contents of your home, you might consider contents insurance. This cover will insure your household items and personal belongings if they’re stolen or damaged by an insured event within the home. It will usually include items such as furniture, clothes, computers, fridge, washing machines, televisions, art and jewellery. 

Making an informed decision about your insurance

Finding the most suitable insurance for your home and contents is complicated by the vast number of insurers offering policies, each with its own fine-print. That’s why you should read the PDS before agreeing to and accepting the terms of any policy.
 

It’s not unusual for people to find themselves underinsured – where you don’t have enough insurance to cover the replacement value of the building and your contents, so you’re left with a hefty bill in the event of a claim.
 

While events such as storms, fires and malicious damage are standard covers on most insurance policies, accidental damage isn’t always included. Accidental damage may be available as an optional extra, but typically at a higher cost or premium.
 

Working from home is another consideration that’s often overlooked. A home and contents insurance policy may not cover contents used for business, so if your home doubles as your office, you may need to consider whether a separate business insurance policy is required policies.

Types of home insurance policies

The first decision you need to make when choosing home insurance is to decide whether you want to nominate a sum insured or want total replacement cover.

Nominating a sum insured

When you nominate a sum insured, your policy can cover you up to a set amount to rebuild your home or cover repairs for any damage. This set amount is chosen by you, so it may be a good fit if you know the value of your property.
 

If you’re not sure what your home is worth, don’t worry. Many insurers offer online calculators that help you estimate the value of your building by considering elements such as building materials, number of rooms, quality of fixtures, etc. These calculators estimate how much it would cost to rebuild your home and you may find this is different to how much you paid for it to be built, especially if you've been living in your home for a number of years.
 

The main drawback of nominating a sum insured is the risk of ending up underinsured if your calculations aren’t right. You may, however, be able to change the amount you are insured for at any time to account for fluctuations in building and repair costs, or when the value of your home changes, for example, if you undertake some renovations and add new rooms or features.
 

Some policies also include a safety net, which acts as a financial buffer if your sum insured is lower than the replacement/rebuild cost in the event of a claim. To make sure you don’t end up out of pocket, you should always keep your sum insured up to date.

Total replacement cover

A total replacement policy doesn’t require you to set a cover limit. Instead, your insurer will cover the total cost of repairing or rebuilding your home if your claim is successful.
 

This type of cover can be more comprehensive than a sum insured policy and, for this reason, it’s usually more expensive. But if you don’t know what your home is worth and you want to minimise your risk of ending up underinsured, it may be worth taking a look.

Finding the best level of cover for you

When you buy insurance it’s not only important to find the right policy, but also to have the right level of cover. In general, the higher the level of cover, the higher the premium. So, you may need to consider a balance between price, product and service inclusions, as the cheapest option may not always tick all your boxes.
 

Here are some things to consider as a starting point when deciding what level of cover you need.

• The type of insured events your policy covers (for example flooding and water damage). Are these standard inclusions or optional extras?
• Additional benefits (like temporary accommodation if your home is unliveable after an insured event).
• Item/sum insured limits. Some policies have maximum amounts you can claim for certain personal valuables. If you have items that exceed these limits, you may want to look at personal valuables cover if you want them to be fully insured against any loss or damage.

What’s typically covered in a standard home and contents policy?

A building and contents policy is there to cover you against damage due to what’s known as an “insured event’’. While these differ between insurers, there are some standard events that most policies cover:

• Fire and explosion (including bushfires)
• Storm, cyclone, and rainwater
• Lightning
• Earthquakes and tsunamis
• Theft and attempted theft
• Vandalism and malicious damage
• Impact damage (such as falling trees)
• Escape of liquid (such as a burst pipe)
• Flood (sometimes an optional extra)
• Accidental glass breakage (sometimes an optional extra)
   

The best place to start is always with the terms and conditions, limits and exclusions in the PDS. It explains how a specific policy works, including insured events, when you’re covered and not covered, cover limits and anything else relevant that you need to know. You should be able to access an insurer’s PDS on their website or by giving them a call. 

Commonly asked questions

1. Does home insurance cover plumbing and leaks?

Water can appear in your home for a variety of reasons. Leaking toilets. Burst pipes. Broken appliances. Your home and contents insurance usually covers water leaks if they’re unforeseen. However, if the leak has occurred due to poor home maintenance, and is deemed to have been preventable, then your insurer may not accept a claim.

2. Does home insurance cover mould on the ceiling or walls?

Mould damage is generally not covered by home insurance. Mould is typically classified as an exclusion, including the cost of its removal and any cleaning. 

3. Does home insurance cover roof leaks?

Coverage is based on how the leak occurred. For example, you may be covered if the leak was caused by impact damage from a falling tree branch, or storm debris. However, if the roof is leaking due to lack of maintenance such as rusted roof nails or sheeting, loose tiles or blocked gutters, your insurer may not cover the cost of repair or replacement.

4. Does home insurance cover cracks in the walls?

This is another situation where the answer isn’t straightforward. Your home insurance may cover the cost of repairing cracked walls, if the cracks were caused by an insured event, such as a burst pipe that subsequently causes flooding and cracks in the walls. But if the cracks are due to structural issues like moving soil, you may not be covered.

5. Does home insurance cover termite damage?

Insurers generally do not cover damage caused by termites. It is important to carry out regular pest inspections and treatments to prevent a build-up of such pests in your home.

6. Does home insurance cover accidental damage? 

Accidental damage cover may be included automatically on your home insurance policy or may be an optional extra. As an optional extra, it provides cover for the cost of sudden, unintentional and unintended events, like spilling red wine on a carpet or damaging a wall when moving furniture, but not general wear and tear that occurs over time. 

Other things to consider with home insurance

Apart from the cover itself, there are some other important features you may want to think about when choosing home and contents insurance.

• Opportunities to save on your premium. Some insurers offer discounts for combining products, such as buying building and contents insurance together. They may also have discounts and offers for new customers.
• Payment flexibility. With the rising cost of living, you could consider saving on your premiums by paying annually rather than monthly or weekly, if you have a lump sum of cash available. Some insurers offer paying by instalments at the same price as annual.
• Customer support. It should be simple for you to get help when you need it – whether that’s taking out a policy, asking a question or making a claim.

It’s important to review your cover regularly

To make sure your cover is still right for your circumstances, and to avoid the risk of being underinsured, it’s important to review your insurance policy regularly. The cost of replacing and repairing things tends to increase over time, so you might need a higher amount of cover today than you did a few years ago. Plus, if you’ve made any big changes to your home with renovations, or you’ve purchased some new expensive items, your existing level of cover may not be enough in the event of a claim and you could find yourself out of pocket.
 

Be aware, some insurers will automatically increase your sum insured each year so it’s worth reviewing your renewal documents each year to see how much you are covered for. When it comes to renewal time, it could be worthwhile getting a number of quotes to ensure you find a product that offers the best value for your circumstances. 

Make an informed decision

Buying a home is likely to be one of the biggest financial decisions you make, so choosing a home or building insurance policy to support that decision should be given careful consideration.
 

Everyone’s situation is different, so what’s right for your friends or neighbours might not suit you. Do your homework, shop around and make an informed decision when buying insurance to cover your home and contents.