What you need to know about insuring your first home

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 but pop the champagne corks? Get home insurance, that’s what. Here’s what you’ll need to know.

If you have been renting you may already have 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.

What does building insurance cover? 

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:

  • total replacement cover which includes all the costs to rebuild your home and restore it to the state it was in before that hail storm smashed every tile on your roof
  • sum insured which will cover damage up to a fixed amount.

How much should I insure my home for? 

You've got to remember 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 insurance providers will use to estimate how much cover you need:

  • Cost per square metre - this method provides a rough guide based on the size of the house and the materials used
  • Elemental estimating - assesses in detail the different elements of the building to calculate rebuilding costs from the ground up, using local wage and material rates and other construction data

Underinsurance is a problem in many parts of Australia. If you are buying in a high-risk bushfire or flood-prone 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.

Contents cover 

If you already have contents cover, it might be worthwhile bundling this up with your building insurance cover. Many insurance providers offer bundling discounts and this might be the most cost effective way for you to insure both your home and your belongings.

Where should I buy home insurance? 

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 competitive quotes. Compare policies on major features at Mozo’s home insurance hub.

When should I buy home insurance? 

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 insurance company 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.

How much does home insurance cost? 

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 underinsure 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 to lower the insurance premiums on your home and contents. Some insurance companies have loyalty discounts, so if you have your car insurance with the same provider 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 reach a considerable level, so it’s worth enquiring if you would qualify. As long as you can prove continual coverage, you can generally transfer your no claims discount from a former insurance provider to your new provider.

Don't forget to look for online application discounts which might cut your premium down for the first year. It may also be cheaper to pay 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.

A couple grins while sitting against a wall with a black cartoon house outline painted on.

First home insurance FAQs

Is home insurance mandatory in Australia?

It is not a legal requirement to have a home insurance policy in place for your home in Australia, whether that’s building or contents insurance. 

However, most home loan lenders will require you to have a policy in place before the loan becomes unconditional. This is to reduce your perceived financial risk as a borrower, because you theoretically won’t have to pay out of pocket for any household damages such as flooding.

What does home insurance cover?

Home insurance is an umbrella term for a few kinds of policies: building, and contents insurance. 

Building insurance covers unexpected damages to the building itself, everything from broken windows to flooding and bushfire damage. 

Contents insurance only covers your household belongings against damage, making it ideal for renters. There are a few other kinds of insurance that could apply to a property as well, such as mortgage protection insurance and landlord insurance.

How is home insurance calculated?

Your home insurance premium is calculated by your provider based on numerous factors, which creates your ‘risk profile’. The riskier you seem, the higher your premium (in general). Factors that influence your risk profile include where you live, the amount and type of cover you require, relevant claim history, and compulsory government charges such as stamp duty and GST.

How long do home insurance claims take?

According to the General Insurance Code of Practice, home insurance claims should be answered within 10 days. This means the provider will let you know whether your claim has been accepted or denied based on the information you supplied them.

In some extreme cases, such as natural disasters, providers may take a little longer to respond to your claim. This is because a large volume of claims would be coming through, which would delay processing time. However, insurance providers have also been known to triage affected policyholders, such as during the 2022 NSW/QLD floods, so it may be possible to process your claim quicker.

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