Home loan resources

What you need to know about insuring your first home

How much should I insure my home for?

Voiced by AJ Duncanson, Mozo Data Services Director

Done all the hard work of saving up a deposit, shopping around for a mortgage and finally landing your dream home?

Well now you are probably thinking about getting home insurance to protect your new house from things like fire, floods and natural disasters. One of the most important things you need to work out is how much you should insure your house for.

To do that you need to work out what it would cost you to rebuild your house all over again from the ground up and remember, the price you paid to buy your home is not the same as the cost to rebuild it.

Let’s look at an example.

The Johnson’s have bought their first home for $800,000.

They use an online rebuild cost calculator which takes into account the area of their home in square metres and the building materials used and it tells them that their home is worth $400,000.

Then they speak to a local builder who notices their house is built on a slope and has arched doorways. He tells them to add another $50,000 to their estimate to cover these features.

So in the end, to have adequate cover for rebuilding their home just as it is, the Johnson’s insure it for $450,000.

But it’s not just your house that needs to be insured against dangers, it’s also everything in it. And that means you will need to work out how much contents insurance you will need.

Let’s go back to the Johnson’s.

Again, they can use an online calculator to help them get a good idea of what value they should place on the contents of their home.

To do that they’ll need to answer questions like how many people live in the home, do they have minimal, average or a large amount of furniture and are their belongings average quality, good quality or designer.

With all these questions answered, the Johnsons work out their contents should be insured for about $49,000. So, all up, their home and contents is insured for about $499,000.

Now there are a few other things to consider as well.

If the Johnson’s live in an area that’s prone to natural disasters like floods, they should check if this is already covered or if they might need to pay extra for this cover.

The Johnson’s also have some valuable items like their ski gear and musical instruments, which should be itemised on the policy to ensure they are fully covered.

Two other events often not included are accidental damage cover and cover for loss of personal items when you take them out of the home, so those might be worth considering also.

Now while it might seem a little overwhelming to put a price tag on your home and everything in it, remember, that’s what home insurance is for; to cover the costs if you have to replace everything. So it’s definitely worth taking the time to get it right.

Have an idea of how much cover you’ll need? Take the next step and compare home insurance deals at Mozo.com.au today!

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.

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? 

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:

  • 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 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.

Contents cover 

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.

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 at least three 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 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.

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 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.

Find great home loan deals

Which type of home loan would you like to compare?