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Home insurance for first home buyers: here's what you need to know

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?

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

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. Includes all the costs to rebuild your home and restore it to the state it was in before the insured events.
  • Sum-insured cover. This covers damage up to a fixed amount. 

What is contents cover, and should I have it?

Collage of a couch with legs.

Contents insurance is a specific kind of policy that covers your household belongings, such as your TV, furniture, clothes, and so forth. 

If you already have contents cover, it might be worthwhile bundling this up with your building insurance cover when you buy your first home. 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.

Otherwise, contents insurance can be a useful policy to have on hand for renters.

Do I need to buy home insurance when buying property?

Collage of a hand accept house keys.

Home insurance isn't mandatory, but your home loan lender may require is as a condition of your contract, in addition to any lenders mortgage insurance (which protects them in case you default on repayments). 

This doesn't mean you have to purchase home insurance from your lender. Shopping around and comparing home insurance providers can clue you into which policies offer great value and coverage. 

When should I buy home insurance?

When buying a new home, it's generally wise to have a building insurance policy in place from when you sign the sale contract and pay the deposit. At this stage, you've legally committed to buy the property, though the exact rules vary from state to state. 

Generally, you can organise to get a cover note from your insurance company. This can tide you over until the settlement date, when your actual policy kicks in properly.

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? 

Collage of a woman researching home insurance on her laptop.

The cost of your home insurance will depend on a number of factors including the postcode, whether you are in a disaster-prone area, and how much you choose to insure your home and contents for.

For building insurance, you can set an amount for the sum-insured. 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, including redesign costs and materials, 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. Don't forget to look for online application discounts, too, which could 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.

How much should I insure my home for? 

Collage of hands shaking over an insured house.

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, labour, and designing 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. Assess 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.

Here's our home insurance checklist for your property to get your started. 

Bamboozled by all the home insurance jargon? Read our jargon busting guide.

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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Evlin DuBose
Evlin DuBose
Money writer

Coming from a diverse background in filmmaking, music production, and creative writing, Evlin is passionate about putting money-matters in relatable, personal contexts. Budget what? Finance who? She’s keen to find out!

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