Home insurance traps to watch for BEFORE Australia’s next bushfire crisis

A smokey Australian sunset during the Black Summer 2020 fires.
Photo by Stanley Li.

After the catastrophic 2020 Black Summer bushfires devastated parts of Australia and destroyed thousands of properties, it's no wonder home insurance has been on the minds of many Aussies since. (All the recent floods haven't helped, either!)

For those living in bushfire-prone or affected areas, the colder months are an important time than now to check up on your bushfire cover and safety plan, in order to ensure your claims don’t get rejected and leave you severely out of pocket. 

According to Mozo’s Banking Expert, Peter Marshall, the first step is to comb through the fine print in your Product Disclosure Statement (PDS). 

“All insurance contracts have a lot of detail in them, so it really pays to take the time to read your contract and know where the gaps are or where they might be in case you do need to make a claim in the future,” he said. 

Of course, it’s one thing to read your PDS, and another to actually understand what it could mean for you. 

If you’re ready to make a home insurance claim, jump over to Mozo’s guide for steps on how to make a claim

But otherwise, keep reading for answers to some of the bigger questions, including common exclusions to watch for and the impact the bushfires could have on your premium. 

Does my home insurance cover bushfires? 

Most standard home and contents insurance policies will offer cover for fires, including bushfires. This means you could receive a payout up to your sum insured to help with repairs and restoration, should your home get damaged or destroyed by bushfires.

But in terms of the specific circumstances under which your home could be covered, that really depends on the individual insurance provider. Many providers have varying definitions of ‘fire’, so it’s important to double check the wording used by yours. 

As for those still searching for a home insurance policy, Marshall recommended “find[ing] a definition that’s going to cover you in the most likely fire-related situation that you could find yourself in”. 

“Look at a few different wordings of ‘fire’. You can do this efficiently by comparing policies from a few different underwriters, as there are lots of public insurance brands but only a handful of underwriters. Once you’ve found definitions that suit you, the next step would be to compare prices for those policies,” he said. 

How will the bushfires affect the cost of home insurance? 

Speaking of prices, some Aussies may be wondering whether the bushfire crisis could lead to a surge in premium costs for home and contents insurance. 

According to the Australian Financial Review (AFR), that’s certainly a possibility. Since the bushfires began in September, insurance companies have received around 8,500 claims, adding up to $700 million of losses! This increased cost and risk for insurance providers could then have a ‘flow on’ effect to premiums.

“With the number of home insurance claims skyrocketing in the wake of Australia’s bushfires and floods, it’s no surprise insurance companies are struggling to cope and maintain their bottom line. So the prospect of premium costs going up is definitely on the table,” Marshall said. 

But it’s not only the rising cost of insurance that Aussies may have to worry about. Aviso Qsure Insurance Broker’s Melissa Ryan told the AFR that Australian households could also expect to see more cases of uninsurable risks and much stricter underwriting guidelines as the country experiences more frequent and extreme natural disasters. 

RELATED ARTICLE: Guide to Australian bushfire bank emergency relief packages

Marshall added that for residents living in high risk fire zones where home insurance options are (or will become) either extremely limited or expensive, one way forward may be to do your homework and prepare your finances as thoroughly as possible.

“You might have to shop around before you find an insurance provider who is willing to offer you a policy,” he said. 

“Or in the case that you don’t find one, then it’s a matter of reducing your risk as much as possible and saving the money you would have put into an insurance policy yourself so that you have an emergency fund should something terrible happen.” 

When am I not covered?  

Even with home insurance under your belt, there are instances where your provider may not cover or only partially cover your home for fire damage. Here’s a few cases to keep an eye out for: 

If your policy is only a few days old: If you’ve only just taken out a home insurance policy, then you’ll need to wait for a while before you can be covered for any bushfire damage. Typically, waiting periods are 48 to 72 hours after purchase, but make sure to double check this with the insurance company before signing up. 

If there were no flames: Generally insurance providers believe that it only counts as fire damage if there was a flame present. In other words, you most likely won’t be covered for any scorching or damage caused by smoke or soot from a nearby bushfire, unless the flames actually touched your house.

If your house doesn't comply with fire regulations: f your home doesn’t abide by fire safety laws - for example, a heater isn’t installed correctly or you don’t have smoke alarms on every level of the house - then the insurance company could reject your claim. So make sure your home is properly maintained and up to speed with the latest fire safety requirements, especially if the house is old or you’re doing renovation or construction work. 

If your property is underinsured: If you insure your home for its current value and it gets completely burnt down by a bushfire, you may find that your policy won’t cover you for 100% of the rebuilding costs. That’s because modern building codes in place after Victoria’s Black Saturday bushfires have meant properties now need to meet a higher benchmark and use more fire-resistant materials, which could result in tens of thousands of dollars in extra costs. 

So if you live in a high risk fire area, it’s wise to check your property’s Bushfire Attack Level and speak with your insurance provider or a builder about how this could impact your property’s rebuild cost. 

Or if you’re still concerned, you could consider a policy with underinsurance cover (covers up to 30% more than the sum insured) or a total replacement policy (covers the entire cost of rebuilding your home). Just remember that these options will usually charge higher premiums. 

Can my insurance provider cancel my policy? 

Unfortunately, yes. Your insurance provider could cancel your policy, although they’re obligated by law to give you written notice beforehand. The insurance company must let you know about the cancellation at least three business days in advance, but many provide longer notice periods, so it’s a good idea to check with them for their policy around this. 

Cancellation could occur if you miss an instalment payment on your premium and it remains unpaid for at least one month after the due date. Be sure to check your contract or contact your insurance provider about the specific rules around non-payments before signing up.

As for staying on top of your payments, all that takes are simple actions like jotting the dates down on your calendar or setting alarms on your phone for at least a day or two in advance so you’ve got time to get your payment together. 

Another useful strategy is to opt for automatic payments - just make sure you have enough funds in your bank account to meet each payment, as otherwise, you could be hit with a direct debit dishonour fee.

What’s next? 

We're unlikely to have a summer as bad as 2020 for another few years, but you’ll still want to know exactly what you’re covered for in your existing policy.

If you don’t have home insurance yet, you could check out some options below or jump over to Mozo’s home insurance comparison page. Just bear in mind it could take up to 72 hours before your policy kicks in!

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