How much contents insurance do I need?

Table Content Insurance

Not sure how much contents insurance you need or if you should even get it? You’re not the only one.

Contents insurance is a wonderful way of being able to keep your most prized possessions safe and sound. This guide will highlight the reasons why you might need contents insurance and how to determine how much cover you really need.

­Why do I need contents insurance?

It’s hard to imagine fire destroying your house and everything in it, or coming home one day and finding that thieves have stolen your most treasured jewellery, your expensive laptop or your camera.

Contents insurance is different from home insurance, which just covers the building itself. Realistically, everyone needs contents insurance whether they own their own home or are renting.

Contents insurance gives you financial protection in the event of the unthinkable: losing everything you own. It will also cover partial loss or damage and can include insurance for those things you frequently take out of the house.

How much contents insurance do I need?

There is a wide range of contents insurance policies to suit different people and circumstances. If you are a homeowner, you can buy contents insurance along with your home insurance.

If you have a home office, there are extra options available to cover your essential work items, and if you often travel with portable valuables like a laptop or camera, there are insurance options to cover them.

Many people deliberately choose to underinsure their home contents as a way of paying a lower premium. However, this approach can backfire terribly. If your house burns down in a fire and you have lost all your possessions, you wouldn’t be able to replace everything.

Calculating contents insurance: Think replacement value, not worth

It can be easy to end up with contents insurance without really thinking about the amount of money you would need to replace everything you own.

  • Keep track of your belongings. It can be hard to keep track of all your belongings and remember their value, especially if you haven’t written them all down. Over the years you may have bought new valuables or received expensive gifts. If you haven't reviewed your home contents since you first took out insurance many years ago, it might be time to take another look.
  • Costs add up. Some of your old pieces of furniture might not seem that valuable any more, but if you lost them in a fire, the cost of replacing them would be huge. That old couch you probably couldn’t sell for $50 could cost more than $1000 to replace.
  • Cover for all scenarios. Those small, valuable items like laptops, cameras and jewellery are at risk of theft. Thieves are not likely to steal larger items, such as fridges, curtains, washing machines and beds, but they can still be destroyed by fire or flood.
  • Get an accurate estimation. You might try to estimate the total value of your possessions by doing a quick mental calculation and using that figure as your insured amount. But you’ll get a far more accurate figure if you walk through each room of your house and write a list of every valuable item you own and its value. You’ll be surprised at how much it would cost to replace everything in the event of a fire.
  • Keep an inventory. An inventory could be as simple as listing all your possessions and their value. Alternatively, there are a range of inventory templates available online that you can get through insurance companies.

Remember, it’s not just the big items you need to include, such as furniture, whitegoods, TVs and computers. Other things, like small appliances, clothing, jewellery, curtains, rugs, books, toys, kitchen items, linen, musical instruments and sports equipment, will all be expensive to replace and should be included in your estimate. And don’t forget items outside the house, such as tools, barbecues, lawnmowers and furniture.

What risks am I covered for?

Contents insurance generally covers the following events:

  • Fire
  • Flood
  • Theft or damage caused by attempted theft
  • Earthquakes
  • Explosion
  • Lightning
  • Storms
  • Escape of liquid, such as burst water pipes
  • Impact, such as by an aircraft or a vehicle
  • Malicious acts and vandalism
  • Riot, civil commotion or public disturbance
  • Damage by an animal

Note that exclusions will differ from policy to policy. For instance, you won’t be insured for the theft of an item by someone you allowed into the house. And while you will be covered in the event of escape of a liquid, such as a burst water pipe or leaking washing machine, you may not be covered for damage caused by a leaking shower that has not been properly waterproofed.

Damage caused by an animal you don’t own that becomes accidentally trapped in your property may be covered, but damage by rodents or insects may not be.

Are there any specified limits to contents insurance?

While general household goods are covered under contents insurance, items such as jewellery, watches and handwoven rugs as well as valuable artwork and collections can have limits on the amount that is covered.

Insurers may limit what they cover under a general contents insurance policy. There may also be limits on how much you can claim for each item. For instance, an insurer may only pay $500 for a piece of jewellery when in fact it is worth $3000.

In such cases, you will need to take out extra cover if you have any of these expensive items.

You will need to list these valuable items individually in your insurance policy and you will need to pay an extra premium to cover them as specified contents. In the event of losing the item, the insurer will only pay as much as you specified on the certificate of insurance.

What optional extras are there?

You will often take some valuables, such as cameras, laptops, sports equipment and jewellery, out of the house. You can buy extra insurance to cover these items away from home. Usually, there will be a limit to how much each of these portable valuables will be insured for. Some items can be covered as unspecified valuables under your policy, but you will need to individually list other items.

Additional optional extras on a contents insurance policy can also include the following:

  • Accidental damage of contents during everyday life
  • Accidental damage or loss of portable items taken out of the home
  • Electrical motor burnout, such as a fridge or a washing machine
  • Emergency accommodation if your home is unliveable
  • Loss of computer records or credit cards
  • Loss of perishable food
  • Emergency storage of contents if your home is unliveable
  • Removal of debris after a fire or flood
  • Contents of your home office
  • Spoilage of food caused by an insured event
  • Items kept outdoors

Sum insured vs total replacement cover

There are two main categories of contents insurance:

  • Sum insured. The policy will pay only up to the amount specified on the policy. This is the most common form of insurance. You can also get an extended cover policy that adds up to 30% on top of the insured amount.
  • Total replacement. You will be insured for the amount needed to replace an item with a brand new one. You’ll usually have to pay a higher premium for total replacement cover, but this option will reduce the risk that you’re underinsured.

What is underinsurance?

If you buy contents insurance but underestimate the amount of money it would take to replace all your belongings, you are underinsured.

The Insurance Council of Australia estimates that more than one third of Australians don’t have contents insurance and over a third of those that do have contents insurance are underinsured.

When calculating insurance payouts, insurance companies don’t simply pay the full amount of the value of the possessions you lost. Instead, they take into account the insured value.

The insurer will value the contents of your property and then calculate how much you had underinsured your possessions by. The insurer will then pay out an amount in proportion to the underinsurance.

Learn more about underinsurance and how to avoid it.

Are there other ways of lowering my premium?

There are other ways of reducing your premium rather than taking the risky approach of deliberately underinsuring. Some of these include installing:

  • Smoke alarms
  • Security systems
  • Deadbolt locks
  • Fire extinguishers

Some policies will require that you install these items.

When getting a quote, or even if you already have insurance, ask the insurer about any discounts they offer.

You might be able to get a discount through combining your home contents insurance with other insurance products from the same insurer, or you could get a loyalty discount based on the number of years you have had a policy with the same company.

You can also choose to pay a higher excess, which is the amount you need to pay before you receive money from the insurer.

When your policy is due for renewal, try to find the time to look for better deals, rather than just paying the annual premium with the same insurer. Try to get quotes from at least three insurers.

Compare contents insurance policies today

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William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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