What does home and contents insurance cover?

The following options are available with most home and contents insurance policies. Some will always be included while others are optional or might not even be available. Ideally you should get a household insurance policy which covers everything that could issue that could realistically happen. The more likely it is to happen, the more it will raise your premiums. Choose what you need to be protected from.

Exclusions you will find in most home insurance policies

These are typically not covered by insurance companies because the costs are too unpredictable or the risk level is too high. However, if you do want coverage from some of these it may be possible to find a policy that covers them.

• Wear and tear, and gradual deterioration such as mold, rust, gradual erosion and more.
• Actions of the sea in high risk coastal areas.
• Nuclear, biological and chemical spills or pollution.
• Any injuries or damage incurred by the policyholder while doing anything illegal, including possession of unlicensed firearms, dangerous dogs, illicit drugs and anything else.
• Any costs related to stress, anxiety, discomfort or inconvenience.
• Power surges unless they were caused by an insured event.
• Any deliberate damage caused by you.
• Damage caused by shoddy renovations or home construction, unless the builder was previously approved by the insurance company.
• Sentimental value of items.
• Damage to gardens or landscaping.

Conditions that may result in exclusions

If you are found to be responsible or at fault, insurance companies may not be pay claims even if the event itself is covered. These may be things like:

• Theft of unsecured items, such as from unlocked homes.
• Damage to a home which looks unoccupied.
• Illegally or improperly storing dangerous materials such as explosives on your property.
• Damage caused by failure to properly maintain buildings or possessions.

The Australian Bureau of Statistics estimates that 1.8 million Australian households, or 23%, have no home and contents insurance.

What should I look for in an insurance policy?

When reading over an insurance policy, look for how claims are paid. There are two main ways of paying claims on buildings.

• Total replacement covers all the costs of restoring your home to the way it was before an event so you don’t need to worry about any difference between the cost of this and the amount you were insured for. This is particularly useful because the price of building and material costs, temporary accommodation and basic necessities can go up in times of disaster. Total replacement is not always available.
• Sum insured is more common, and refers to a specified dollar amount chosen by you. The sum insured should ideally be how much it would cost to rebuild your home exactly how it was, and replace all your possessions.

• New for old: Replaces your belongings with equivalent new ones or pays the value of new ones.
• Replacement: Is a policy that will pay the actual value of lost items, subject to depreciation.

• Limits: The limits are the maximum amounts that will be paid for certain things. The total limit is typically the sum insured, but more specific limits will apply to other things. For example, an insurance policy might have a $1,000 per item limit for jewellery, which means they will only pay up to that amount for each separate item of jewellery. They might also have something like a $20 million limit for legal liability, or a $20,000 limit for impact damage.
• Flexibility: This is the freedom to adjust your policy to suit changing circumstances. Some products will only let you adjust your cover at renewal time, but if your circumstances frequently change this might not work for you. One of the most common flexibility features is variable excesses. The excess is a fee you have to pay when making a claim. Variable excesses are the option of choosing higher excess for lower premiums, or lower excess for higher premiums.
• Flexible limits are the ability to choose a level of cover that’s right for your needs, even it’s outside the typical range. For example, the default limit might be $1,000 per item of jewellery, but each of your jewellery items costs $2,000. In this case flexible coverage can let you raise the jewellery per item limit from $1,000 to $2,000. This will also raise your premiums.
• Exclusions: These are things not covered by the insurance policy, or conditions under which you cannot make claims. For example, a home insurance policy might not cover damage to a furnished home if it was left empty for more than 30 days but will cover it in an unfurnished home. All household insurance product disclosure statements (PDS) will have an exclusions section to make them clear. Don’t shop by price alone. The best home insurance policy is one that covers you well and has lower premiums. It’s worth paying more for one that covers you thoroughly.

How do I find the best household insurance policy for my needs?

Everyone has different home and contents insurance needs. To find the one that’s right for you:

Calculate the sum insured The total value of your home and contents is called the sum insured.

Most insurers have calculators on their website to help you estimate this. Insurance companies will not pay out more than the actual value if your sum-insured was too high, but will pay out less than they were worth if your sum insured was too low. Alternatively, you might get total replacement which covers the value of what was lost, regardless of any sum insured. Use sum insured calculators provided by insurance companies and compare the figure they give with the sum you arrived at. If there’s a big difference you should review your home and contents in more detail.

Avoid being underinsured The simplest way to avoid underinsurance is with a total replacement policy or an extended cover option where available. Extended cover will pay out a certain additional amount on top of the sum insured to cover unexpected costs, usually an additional 20-30%. To avoid underinsurance you should follow certain steps.

1. Consider additional expenses involved when something happens. This includes paying for removal of debris, architect or construction fees, administration costs, building material expenses, cleaning up after events, and other associated costs.
2. Think about how prices will change following events. For example, widespread disasters will typically cause prices of accommodation, construction materials, and essentials to go up.
3. Check to see whether or not your insurance policy covers these extra costs as part of the sum insured, where you will need to include them, or as additional expenses on top of the sum insured.
4. Carefully look at what additional costs are included as this varies widely between different home insurance policies. When things that are not included you will need to foot the bill yourself.

Decide what you want covered Choose which risks you need protection from. Remember that you will only be covered for things specifically listed in the insurance PDS. Consider everything of value and all potential risks including natural disasters, accidents, crime and medical or legal liability.

Compare Policies You must know your desired sum insured and what you want covered before choosing a policy. Consult a number of different insurance companies to compare home insurance options. If there are any details you’re not completely sure of, you should ask the insurance company about them. Look at a variety of reviews to try to get a sense of how easy it is to make claims, and ask people you know who have had experience with insurance companies that you’re considering. Insurance companies provide different types of coverage and levels of service in different areas.

A review of a company’s Queensland branch might not be applicable for Sydney. Try to find reviews from your area.

How can I get lower household insurance premiums?

There are many ways to lower your costs.

• Consider increasing your excess: Some insurance companies give you a measure of control over excesses, also known as deductibles, which are fees that you must pay for making a claim. This fee is subtracted from the payout. Sometimes you can choose to increase your excess and pay less in premiums.
• Don’t make claims you don’t need: It’s not unusual for insurance premiums to increase whenever you make a claim. Consider not claiming on damaged, destroyed or stolen low value items and keeping your premiums lower as this can save you money in the long run. The higher the value of the claim, the more your premiums will go up.
• Have good home security: If you’re at lower risk of crime or vandalism, insurance companies will often recognise this and give you reduced premiums.
• If possible, subscribe annually rather than monthly. This basically gives you a ‘bulk discount’ on insurance but means you’re locked into the contract for a 12 month period and will need to pay larger lump sums, but less in total.
• Keep a running inventory of all the major possessions you own and how much they’re worth. This lets you get the cover you need without paying too much whenever you renew your insurance.
• Maintain your property well. This reduces the chances of you needing to make a claim and keeps your premiums low.
• Smoke alarms, storm shutters, reinforced building materials and more can reduce your premiums, particularly if you live in an area that’s susceptible to particular types of weather damage.

Always read your home insurance renewal policy closely. Your insurer may be raising premiums regularly. It might be time to switch providers and find a better deal.

What should I avoid doing?

Most home insurance traps can be avoided by knowing exactly what you’re paying for. You should avoid:

• Incomplete coverage: Having a sum insured that’s too low, or an insurance policy that doesn’t protect against all the things your home is at risk from.
• Leaving your policy as it is: Remember to update your home and contents insurance policy if there are any changes. For example, if you've extended your house or acquired valuable items.
• Paying for things you don’t need: Earthquakes are impossible in some places, and the odds of experiencing flooding on a mountaintop are slim to none, but that doesn’t mean insurance companies won’t try to include those.
• Low limits: Most policies will have limits for certain things. These might be size limits, such as up to 500m of fencing, or dollar value limits such as up to $5000 worth of jewellery. Make sure these limits aren’t too low.
• Not having records: Keep thorough records of everything you want covered. Clear photographs of possessions in their usual location are recommended. Receipts and other proof of purchase can act as records of their value. A frequently updated electronic spreadsheet that lists all your items by room is an easy way to keep track of possessions. Ideally it should be stored in such a way as to be accessible even if your home is destroyed.

The good and the bad of home and contents insurance

The good:

• It is important, and means you won’t need to start from scratch if you lose everything.
• It is usually flexible and allows you to add or reduce your cover as circumstances change.
• It covers both your home and possessions and is usually more cost effective than insuring them separately.

The bad:

• Not all natural disasters are covered by the insurance companies (such as hurricane, flood and earthquake) or they are covered partially.
• Most brands will require you to pay an excess in the event of a claim.
• You need to accurately calculate the sum insured, or you could get partial compensation, or pay more to get less.

How much does home insurance cost?

The amount you spend on home insurance varies enormously depending on the sum insured, location and level of coverage and any discounts you may be getting. If you think you’re paying too much, get quotes from a different provider. The table below is based on the average prices from several insurance companies for $500,000 sum insured, and roughly shows how widely they can vary between locations.

The most common home insurance claims and how to avoid them

Water damage, fire damage, storm damage and household accidents are four of the biggest and most costly hazards you might face. Depending on how they occurred, you might not be protected even with comprehensive cover. Fortunately there are a lot of ways to minimise these risks.

Answers to all your home insurance questions

Choosing a policy

About home insurance

Dealing with insurance companies