Home Insurance – Forbes Advisor Australia

For most people who own property, their home is their most valuable asset. It’s also where we centre our lives and ensure our basic needs are met. So, it’s only natural we want to protect this safe space.

Home insurance can provide that peace of mind. Taking out a home insurance policy acts as a financial safeguard to cover costs arising from natural disasters, break-ins and other events outside your control as a homeowner. But naturally, home insurance comes with a price tag.

There are numerous companies providing home insurance in Australia, so it’s worth figuring out your needs and investigating home insurance quotes to find a wallet-friendly policy that fully insures your home. There’s a lot to consider in this process, but luckily we’ve answered all the big home insurance questions right here.

What does Home Insurance Cover?

Home insurance, often referred to as building insurance, is designed to protect the structure of your home if damages. This usually includes damages caused by events like fire, storms, water damage and vandalism. It also includes cover for legal liability if someone is injured on your property while visiting (think dog bites or falling trees) or even simply walking across your driveway.

Depending on your policy and where you live, this could also include a wider range of riskier circumstances, like flooding or some accidental damages (these may also be offered as optional extras at an additional cost). You’ll also often see policies features like cover for your accommodation costs while your home is being repaired. Be sure to scour your product disclosure statement (PDS) which houses all your policy details for any exclusions around what’s covered or what could be costing you extra.

It’s also important to note what is actually considered your home’s ‘structure’, as every policy has caveats to the definition. For example, one may include free-standing garden sheds, all fencing and lawns in the coverage, and another may not. 

Assuming you’ve had your property accurately valued and the events that caused the damage are included in your policy, home insurance should cover the cost of repairs to your home. 

The Major Home Insurance Companies

There are a huge number of home insurance providers in Australia. Some long-standing companies are connected to banking institutions or have subsidiary brands under their name. For example, Suncorp offers home insurance alongside a suite of other banking services, and also owns AAMI, Apia and GIO who offer home insurance as well. 

There are state-specific home insurance companies like NRMA in NSW, RAC in Western Australia and RACT in Tasmania which only serve residents of those areas. Well-known names beyond the banking world like Woolworths and Australia Post also offer home insurance. 

It’s worth keeping an eye on smaller providers championing insurtech. New player Honey Insurance incorporates technology like home security sensors and satellite imagery into its policies to tailor premiums more accurately to an individual and improve outcomes in an emergency.

How to Value your Home: The Two Types of Cover

When you take out a home insurance policy, the insurance company must agree to the value of your home to set what they’ll pay if you make a claim. The value of your home will impact how much you pay for cover, but there are two ways to set it. 

The two main types of home cover are sum insured and total replacement. The former involves a valuation that estimates what it would cost to rebuild your home if it were totally destroyed. The latter considers the exact cost to repair or rebuild your home to the same standard. This is generally more expensive (and not always offered by providers), but helps avoid under-valuing your home and leaving you in the sticky situation where home repairs exceed the pay-out from your insurance company.

If you go with sum insured, look out for a policy feature called underinsurance protection –  it may also be called a sum insured ‘safety net’ or ‘safeguard’. This usually provides an additional 20% to 30% on top of your sum insured to cover repairs if additional funds are needed. 

How Much does it Cost to Rebuild your Home?

Since it’s up to you, the homeowner, to calculate the value of your home when taking out insurance, it can be helpful to get a third party to conduct an independent valuation (for a fee, of course). There are specialised home valuation services, but professionals like builders or property experts can also provide an informed second opinion. 

Otherwise, you’ll need to do some calculations to figure out how much it would cost to rebuild your home. This can be done using a cost-per-square-metre calculation or via elemental estimating. Most insurance providers recommend using this second option, as it considers more factors about your property than just its size. 

Elemental estimating also takes into account things like the features of your home (e.g. balconies, heating, security systems and bathrooms), the quality of materials used in its construction and the period in which it was built. There are numerous online calculators you can use to conduct this method—you can read what’s suggested by the Insurance Council of Australia as a starting point.

Remember: the cost to insure your home isn’t the same as the price you paid for it, as it doesn’t include the land value, just the building structure. And since the cost of construction, property prices and other factors fluctuate, you may want to reassess your home’s value periodically.

Home and Contents Insurance Combined

Contents insurance will often crop up in conversations about home insurance. This cover is dedicated to protecting the belongings inside your home – from furniture to jewellery, artworks, clothes and crockery. While you can hold each kind of cover separately, most insurance providers also offer bundled home and contents cover at a reduced combined price.

Who Needs Home and Contents Insurance?

If you own the home you live in, it’s pretty common to take out this combined policy option. Even if you don’t own any expensive collectables or high value tech, it can be a huge burden to replace all your belongings after an incident that wreaks havoc inside your home. 

You might skip contents cover if you’re a landlord renting out your property and have few or no items included in this type of insurance. If you do rent out an investment property, it’s worth considering more specialised landlords insurance which can cover loss of rental income if your tenants need to leave the property after an insurable event or if they abandon the lease. While it’s a landlord’s responsibility to insure the property, renters can opt to take out their own contents cover (often called ‘renters insurance’) to cover any potential damages to their belongings. 

What’s Covered by Contents Insurance?

The purpose of contents insurance is to cover the cost of repairing or replacing items around your home that get damaged or stolen. As with home insurance, this loss needs to arise from circumstances covered in your policy for a claim to be successful.There are usually dollar limits for specific categories of items and pieces within those categories, as well as an overall limit for any single pay out. For example, your policy may cover jewellery up to $5000 but individual pieces up to $1000. 

Many insurance companies will let you increase category coverage limits to add on extra cover for specific items, but this usually comes with a premium increase. While this is not an exhaustive list, a few common items covered by contents insurance include:

• Carpets and rugs
• Internal blinds and curtains
• Furniture
• Artworks and collectables
• Jewellery and watches
• Technology (like computers, printers, TVs, computer hardware and software)
• Electronics which aren’t fixed (like a kettle, electric mixer or vacuum cleaner)
• Clothing
• Medical equipment and aids (like a wheelchair or a sleep apnea machine)

There are some coverage points you can include as an optional extra (for an additional fee), like cover for accidental damages and portable contents cover that insures your belongings when they’re outside your home.

How to Compare Insurance Quotes

You can get a home insurance quote online in about five minutes from most providers, and it’s worth comparing quotes to see how each company stacks up. Once you provide the basic details about your home and how much you’d like it insured for, you’ll need to compare insurance quotes based on a few factors. 

• Premiums: This is the amount you’ll pay each policy period (usually annually) for the coverage. A lot of factors about your home and the coverage choices you make can affect your premium. You’ll want to check if there are any discounts available to bring this down, like a price reduction for paying your premium in full (rather than monthly) at the start of a policy period, or for combining home and contents cover. Some insurance companies also offer incentives for installing security devices around your home.
• Excess: This is the amount you’ll need to pay when you claim on home insurance. It could be a few hundred dollars or a few thousand, depending on the insurance provider. Some let you set your own excess level, with a higher excess bumping down your premium and vice versa. Whatever the excess, be sure you can pay it in an emergency so you can access your cover to take care of the damages.
• Cover limits: Both home and contents policies will have dollar limits on certain items, as well as an overall pay-out cap. Be sure these limits reflect the full value of your home and belongings, and keep an eye out for underinsurance protection as a safeguard.
• Exclusions: Every policy will exclude some items or events from cover. You usually won’t be covered if you intentionally cause damage to your home, and you’ll often see ‘storm surges’ or ‘actions of the sea’ (which refers to rising ocean levels or tidal waves) under this list of excluded events. If your home is situated in an area prone to flooding, you may not be able to take out flood cover, even as an optional extra. Be sure to check each policy’s PDS to see if any exclusions might leave your property vulnerable.

The Importance of Shopping Around for Home Insurance

Home insurance premiums are on the rise. In 2021, premiums rose by 5.9%, which is the highest annual increase in seven years according to data analytics company GlobalData. This is a longstanding trend, as increasingly frequent and severe natural disasters across Australia— from cyclones in the north of the country to flooding and bushfires along the east coast—drive up premiums.

While the Insurance Council of Australia is working alongside governments and insurance companies to solve this affordability crisis, you should still reassess your cover regularly to ensure you’re getting the best deal possible. This is especially important if you make any additions to your home like building a verandah or updating your bathroom, or if you purchase costly items you’d like to include under contents cover. 

Anything new won’t be automatically covered, so be sure to update your policy at renewal time each year or when changes happen.

Traps to Look Out For

To give you the highest chance of making a successful claim, ensure you read the fine print and be aware of common home insurance traps. These may not all apply to your policy, but it’s worth taking note and checking what might be hidden among your insurance documents, including:

• Coverage may be void if your home is left unoccupied for more than 60 days. If you know this situation will arise, get onto your insurance provider and figure out a solution with them. They may recommend a house sitter or other security measures.
• Water damage cover differs depending on its source. Cover for water damage caused by burst pipes (often referred to as ‘escaped liquid’), storms and flooding have different insurance definitions and may not all be included in your policy. While the first two are more common, flood cover is increasingly being offered as a more costly optional extra.
• Not all work activity is covered by home insurance. Whether you’re working for an employer from home or running your own business, any workplace injuries or damage to equipment that happens at home may not be covered.
• Your contents may not be covered while you’re moving house. While some policies may extend coverage for contents in transit, others won’t. Similarly, always check the conditions you agree to when hiring a removalist, as they may also not be liable for any damages caused while you move into a new place. If you’re concerned about breakages while you move, you might consider taking out transit cover via your existing contents insurance policy, or you can take it out separately.