How to find the cover you need for the home of your dreams.
After years of saving and months of house hunting, you’ve finally made a successful offer to buy a house. Your home loan is sorted and the contract has been signed, but there’s one more important task you need to take care of before you can start celebrating: getting home insurance.
If you’ve never shopped for home and contents insurance before, this process can be confusing, intimidating and time-consuming. Let’s take a look at all the home insurance basics you need to know to find the right cover for your first home.
Do I really need home insurance?
Yeah, you do.
Why? Apart from the fact that it’s a mandatory requirement on most home loans, home insurance is simply an essential expense that offers a crucial financial safety net should something go wrong.
Not only does your home provide shelter and comfort, but it’s also the most valuable asset you’ll ever own. Everything contained within its four walls, including your furniture, clothing, electrical items and all your most-treasured possessions, are also worth a lot of money. So if disaster struck and your home and everything in it was completely destroyed by fire, the financial consequences would be catastrophic.
Without home insurance, you’d be left with nothing; with home insurance, you have the protection you need to rebuild your home, buy new furnishings and get your life back on track.
Is your home protected?
What does home insurance cover?
Home insurance comes in two parts – building insurance and contents insurance.
Building insurance covers your home and other fixtures on your property like sheds, fences and garages. It provides protection against loss or damage caused by fire, storm, flood, theft, malicious damage, explosion and a wide range of other insured events.
There are two types of building insurance cover to choose from:
- Total replacement cover. These policies cover all the costs required to restore your home to the state it was in before that cyclone turned it upside down or that flood created your indoor swimming pool.
- Sum insured cover. These policies allow you to choose a fixed amount of cover for your home and then pay up to that amount to help repair or replace your dwelling.
Contents insurance is designed to cover the cost of repairing or replacing your belongings if they’re stolen or damaged due to an insured event. Fires, storms, floods and several other risks are covered, and once again there are two types of policies available:
- Replacement value cover. These policies cover your belongings up to their current market value, so you’ll need to be aware of the effects of depreciation.
- New for old cover. These policies cover the cost of replacing your stolen or damaged belongings with new, equivalent items. As they offer a higher level of protection than replacement value cover, these policies are more expensive.
How much home insurance do I need?
You can buy standalone building cover or standalone contents cover, but most Australians opt for the comprehensive protection offered by a combined home and contents insurance policy.
However, working out how much cover you need can be a tricky task. If you choose a sum insured home insurance policy, remember that the price you pay when you buy your home is a different figure to how much it would cost to completely rebuild.
Many insurers provide online calculators to help you estimate how much cover you need. These calculators typically use one of two methods:
- Cost per square metre. This method calculates rebuilding costs based on the size of your home and the materials used in its construction.
- Elemental estimating. This is a more detailed option and takes into account a wide range of additional factors, such as the nature of the building site, the quality of the finishes used, the creature comforts your home includes and regional differences in building costs.
Underinsuring could have disastrous financial consequences and is a particular risk if you live in a region of Australia prone to severe storms, bushfires and other natural events. In fact, research from the Insurance Council of Australia has shown that 83% of Australians don’t have enough insurance cover for their home and contents. When in doubt, err on the side of caution to ensure that you don’t get caught short.
How do I buy home insurance?
These days the most common way to buy home insurance is to hop online and purchase a policy direct from an insurer. You can also buy cover over the phone or even in person if your chosen insurer runs retail locations, but it’s usually cheaper to purchase your policy online.
Just make sure to compare a range of policies before you buy. Your home loan lender may offer you a good deal on its own brand of home insurance, but there’s no obligation for you to buy it. Instead, check out the features, limits and exclusions offered by several different insurers, and then compare a few quotes to see which one provides the best value for money.
When should I buy home insurance?
Don’t wait until you’ve been given the keys and moved in to buy home insurance. While there’s no legal requirement for you to take out home and contents insurance before settlement, it’s highly recommended that you do so. In fact, it’s usually best to ensure that you have cover in place when you exchange contracts so that you won’t be left out in the cold if something disastrous happens before settlement day.
In the past you would have needed to organise a home insurance cover note, but Australian insurers no longer use these. By simply taking out home insurance as soon as possible and taking advantage of the policy’s cooling-off period if necessary, you can get the cover you need for your new home.
It’s also a good idea to get your contents insurance sorted before you move in. Most policies cover loss or damage of your stuff while in transit, so you’ll be covered if your plasma takes a hit and ends up with a shattered screen on moving day.
How much does home insurance cost?
This is the all-important question for many first homeowners. The answer: it depends.
There are several factors that influence the cost of a policy, including:
- Where you live. Does your area have a high crime rate or is it prone to extreme weather? If so, this will increase your premiums.
- The level of cover. The higher your sum insured, the more you’ll pay for cover.
- Your excess. Most insurers allow you to vary the excess amount you need to pay when claiming. By choosing a higher excess you receive lower premiums, and vice versa.
- Your home. The age of your home and the materials used in its construction can affect your home insurance premium. For example, some roofing materials are better equipped to withstand hail damage than others.
- Whether you select additional options. If you want to add optional covers to your policy, such as cover for electric motor burnout or for portable contents, you’ll need to pay for the privilege.
- Your claims history. If you’ve previously made home or contents insurance claims, this can impact your future premiums.
To get a better idea of how much your home insurance will cost, get a few quotes from different insurers.
How can I save money on home insurance?
Want to reduce your home insurance premiums? Here’s how.
- Buy online. Many insurers offer online discounts that could shave 10% or more off your premiums.
- Choose a higher excess. If you don’t mind paying a higher excess should you need to make a claim, you’ll receive a lower premium.
- Install a security system. A back-to-base security alarm can reduce the risk of theft and therefore lower your contents insurance premium.
- Look for loyalty discounts. Some insurers offer discounted cover to long-time customers.
- Look for multi-policy discounts. If you hold another type of cover with the same insurer, for example car insurance, you might be able to access a home insurance discount.
- Use promo codes. Check out the latest home insurance promo codes for special deals and savings.
- Shop around. The simplest way to get good value for money is to shop around. By comparing policy features and quotes across a range of insurers, you could enjoy big savings.
Home insurance is an essential expense for every Aussie homeowner but it doesn’t have to break the bank. By shopping around and taking advantage of discounts and deals, you can get the cover your new home needs at an affordable price.