Article by Mozo
You’ve found the property of your dreams, got the home loan sorted and have the settlement date circled in red on the calendar. What else is left to do than pop the champagne corks? Get insurance, that’s what. Here’s what you’ll need to know.
If you have been renting you’ve probably already got contents insurance for your belongings but as a homeowner you’ll need to think about building insurance. Actually, you’ll need to do more than just think about it as you’ll generally find that one of the conditions of your new mortgage is to have adequate building insurance coverage.
Building insurance exists to protect you against things beyond your control like fire, flood or a natural disaster.
There are two types of cover to choose from:
Just remember that the price you paid for your home and the cost to rebuild it are not the same thing. The main value of a home is in the land, whereas your building insurance will cover the cost for the raw materials and labour required to completely rebuild a house in the event of total disaster.
There are two methods insurers will estimate how much cover you need:
Underinsurance is a problem in many parts of Australia and if you are buying in a high risk bushfire or flood area it will be important you get an accurate estimate for your building insurance to ensure you are covered in the event of a disaster.
If you already have contents cover, it might be worthwhile bundling this up with your building insurance cover. Many insurers offer bundling discounts and this might be the most cost effective way for you to insure both your home and your belongings.
It might be part of your home loan contract to have home insurance but this doesn’t mean you need to purchase this from your lender (even if they offer it to you). You can buy home and contents insurance from any home insurance provider so it is important for you to shop around and get at least three competitive quotes. Compare policies on major features at Mozo’s home insurance hub.
It is recommended that you have building insurance in place when you exchange contracts as this is when you become legally obliged to buy, though this may vary from state to state. Generally you organise to get a cover note from your insurer to cover you for the period between exchange and settlement period and on the day of settlement your actual policy will kick in.
In most instances, if insurance is required as part of your mortgage contract a copy of the cover note will need to be sent to your lender in order for them to release the funds for settlement.
You should also get your contents insurance organised before you start moving your things to your new house as many contents policies include damage or loss of belongings while in transit.
The cost of your home insurance will depend on a number of factors including the postcode, whether you are in a bushfire or flood prone area and how much you choose to insure your home and contents for.
For building insurance you can choose the sum you want to insure your property for. While you’ll want to pay the least amount for the best cover available, it is important not to under insure your property just to save a few dollars on your insurance premium. Think about how much the house will cost to rebuild in current market conditions and adjust your sum insured to cover this amount.
There are some ways that you can lower the insurance premiums on your home and contents. Some insurers have loyalty discounts so if you have your car insurance with the same insurer they may offer you a discount on your home insurance. If you have had your contents insured for a number of years without making a claim you might also be entitled to a no claims discount. This can be a saving of up to 30% so it’s worth enquiring if you would qualify and as long as you can prove continual coverage you can generally transfer your NCD to a new insurer.
Other ways you can save on your insurance premium is to look for online only discounts and sometimes it is cheaper paying your premium on an annual basis rather than monthly.
The final way to reduce the cost of your home insurance premium is to increase the level of excess you are willing to pay upfront if you need to make a claim. The higher your excess level, the lower your insurance premium will be. Bamboozled by all the home insurance jargon? Read our jargon busting guide here.
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