If you’re like most people, your home is probably not only one of the most expensive things you’ll ever own, but also one of the most important to you. You probably put a lot of thought into finding the right one and a lot of effort into saving up and choosing a home loan to afford it.
So once you’ve found your home and filled it with everything you love, why would you leave it unsecured? That’s right - you wouldn’t.
Which is why you need home insurance, and why you’re reading this guide. This is Mozo’s complete guide to home insurance, so we’ll cover everything from the definition of a home insurance policy, right down to how to make a claim if you need to.
Let’s kick off with the basics:
Home insurance, which you might also know as property or building insurance, is protection for your home and can help to cover the cost of unexpected damage to your house and garage. It can protect you from things like vandalism, theft or natural disasters.
Contents insurance covers everything inside your home, so it protects your possessions from the same things.
These two insurances are usually bundled together and sold as “home and contents” insurance. They’re designed for private residences - business owners looking to insure their building need to look for commercial property insurance instead.
You’ve got so many bills to pay, and home insurance probably seems like just another one on top, right? Well, like most insurance covers, home insurance may seem like an annoying cost - until you need it, at which point you’ll be glad you won’t have to replace your home and everything in it using your emergency savings.
Here are some of the benefits to having home insurance and why you should start thinking of it as an important part of your budget if you don’t already.
To keep your home and valuables safe. This is the reason most people think of when they decide to take out home insurance. Things like theft, fires, floods and storms can affect anyone’s home, and if it does happen to you, home and contents insurance will cover the cost (or at least some of the cost) of replacing or rebuilding.
To protect against liability. If a neighbour trips on your front step and breaks their leg, you might be liable for their medical bills. Home insurance will often cover those costs so your savings don’t have to.
To keep your premiums low. Here’s the thing: if you let your home insurance lapse now and go without for a few months, a year or even a decade, then if you decide to take out a policy down the track, you might find yourself classified as high risk and your premiums will likely be higher. Why? Insurers might look at your lapse as evidence that you couldn't pay your premium, and assume that you might end up in the same situation again.
To keep your home loan lender happy. Still paying off your home? Chances are, your lender will require you to have a level of home insurance cover that’s at least enough to cover the value of the building. That’s because, as long as you haven’t paid off your home loan in full, the bank stands to lose money if your property is destroyed.
Not all home insurance policies were created equal - there are a few different types of cover, and it’s important to choose the one that applies to your situation. That way, you’ll be covered for the right things and up to the right limits if you ever have to make a claim.
Here are some of the main types of insurance covers you might come across which come under the umbrella term of “home insurance”, but are different in what they cover and who needs them.
Building insurance is the element of home insurance that covers the actual structure and permanent fixtures of your home, including:
Things like gazebos, garages, fences and sheds are sometimes covered as well, but it’s worth checking with your provider to be sure.
Usually, building insurance will cover costs from accidents or disasters including flood, fire, storm damage, theft or vandalism.
Contents insurance usually comes in a bundle with building insurance, under the umbrella term “home and contents insurance”. But it is a separate product, which you can buy on its own if you want to - for example, if you’re renting and don’t own the building you live in.
Basically, contents insurance covers the cost of repairing or replacing your possessions if they are damaged or stolen while they’re in your home. Some of the things covered by your contents insurance include:
One important thing to know is that there are two different types of contents insurance you might take out. The first is sum-insured or otherwise known as “replacement value” cover, which will cover the value of your possessions, taking into account depreciation.
The other type is total replacement or “new-for-old”. This means that if your possessions are damaged or stolen, your insurance covers the cost of a brand new replacement. Sounds good, but keep in mind you’ll pay a higher premium for this type of policy.
Here’s an example of how the two might compare:
* Please note: Prices and values in this scenario are indicative only and should not be considered a real insurance quote.
If you’ve invested in a rental property, you can keep it safe by taking out landlords insurance. This policy should cover things like rent default, damage or destruction to the building and legal liability in case anyone is injured or dies on your property.
Some of the key things to know about a landlord's insurance policy are:
If you’re renting, you may think insurance is your landlord’s problem. Well, think again. Although the actual building isn’t your responsibility, you’ll still need some level of insurance, largely because landlord's insurance doesn’t extend to tenants or their property. That means getting renters insurance, which often includes the elements of:
…which insures, you guessed it, your personal property, like furniture, tech gadgets or clothing. If your stuff is unexpectedly damaged or ruined, it could put a real dent in your savings trying to replace or repair it. This is basically contents insurance, so it’s important to get the right limit of cover for your belongings.Liability cover
Accidents happen - maybe an acquaintance trips on your stairs, or your son throws a ball through the neighbour's window. Liability cover will help to protect you from footing the bill all out of your own pocket. Remember that while your landlord's insurance may cover any injuries you sustain while in the property - it usually won’t cover your guests, which is why it’s important you have your own renter’s insurance policy.
If your rental property is damaged, say in a flood or fire, and you can’t live there for a time, your renters insurance will often help cover the costs of alternative accommodation. Plus, if staying in a hotel for a few months while your rental is fixed up means your food budget skyrockets (hotel kitchens aren’t exactly equipped for family meals, and all that takeout doesn’t come cheap) the insurance will likely cover that too.
Home insurance comes with its own lingo, which can be confusing, especially if you’re buying a policy for the first time. Don’t get tripped up by the technical terms - check out our jargon buster before you go wading through the fine print.
|Accidental Damage||This covers things like spilling red wine on the carpet or a plasma TV falling off the wall. It generally is offered as an optional cover, and usually comes with a higher premium.|
|Appraisal||If you need to make a claim on your policy, the insurance company will likely require a professional appraisal of the damage or the original value of your building or item before they’ll pay the claim.|
|Building Replacement Value||This is the amount it would cost to rebuild your house completely at current market prices.|
|Cancellation||Your insurer can sometimes cancel your policy before the agreed date - most often, this will happen if you haven’t paid your premium.|
|Claim||If your home or belongings are damaged or stolen, and you want your insurance to cover the cost or part of it, you’ll need to make a claim.|
|Contents||Is most of the things inside your house. Usually includes personal possessions like clothes and electronics, as well as white goods, appliances, furniture, curtains and carpets. Make sure you check your policy PDS for a full list of what counts as contents.|
|Duty of Disclosure||You have a duty of disclosure, which means you need to tell your insurer the truth about anything relevant to your policy. If you don’t your coverage could be cancelled, or your claims could be denied.|
|Excess||When you make a claim, there’s a certain amount you have to pay, out of your own pocket before your insurer pays anything. This is called an excess, or sometimes a deductible. This is usually anywhere from around $100 to $2,000. Generally speaking, the higher your excess, the lower your premium will be.|
|Exclusion||Sometimes, there’ll be certain things that are specifically not covered in your home insurance policy. Some common examples of these exclusions include illegal items, previously damaged items, deliberate damage on your part or damage caused in the process of cleaning or maintaining an item.|
|Flood||For the purposes of your insurance, a flood is defined as water that has escaped the usual confines of a lake, river, creek or any other natural body of water, or a reservoir, canal or dam. If your policy includes flood cover (most do these days) you'll likely be paying a slightly higher premium for it.|
|Lapse||If you stop paying your premium, your cover will be suspended for a time, and this is called a lapse.|
|Liability coverage||This covers the costs - usually including legal and medical expenses - for any bodily injuries or property damage caused to others while they’re on your property.|
|Market value||The market value refers to the current value of your property, including the land and any buildings on it.|
|Non-renewal||This is similar to cancellation, but this means that your policy will reach its end as agreed, and then your insurer can decline to offer you an insurance policy again.|
|Old-for-new cover||This term usually applies to contents insurance, and means that your damaged or stolen item will be replaced with a new one, regardless of its age, or wear and tear. Usually, old-for-new policies come with a higher premium than sum-insured policies.|
|Optional Cover||You can add extra optional cover to your policy to cover events (such as flooding or earthquakes if you live somewhere where they are common) or items (such as jewellery or special collections.) Keep in mind, this usually means paying an extra premium as well.|
|Premium||Basically, you can think of this as the price of your home insurance policy. It will vary depending on a few things, like your level of cover and excess.|
|Product Disclosure Statement (PDS)|
Total replacement cover
|A PDS is the document which lays out all the important terms and conditions relating to your insurance policy. Make sure you read it carefully, so you’re well versed in the fine print.|
A sum-insured policy covers your home and contents for damage up to a certain dollar amount, and takes into account the depreciation of items.
Costs that come about because of a claimable event (like a natural disaster or a break in), but aren’t directly related. For example, if your house floods, there are the direct costs to rebuild, which your insurance will cover, as well as supplementary costs like paying for a hotel while your house is uninhabitable. Some policies will cover these extra costs, but others don’t, so make sure you check who’ll be footing the bill.
This is basically the same as old-for-new cover, but is generally used when referring to coverage of the actual building. A total replacement policy will cover the entire cost of rebuilding or repairs.
Although different types of home insurance will apply in different situations and to different people, there are some features that pretty much all policies will have, and which you need to be aware of.
Here are some of the main ones and what they mean for you.
The premium is how much you pay for your home insurance. The price will depend largely on how likely the insurer thinks it is that you’ll make a claim in the future.
While this is sometimes hard to work out - after all, you can’t plan for an accident or disaster - there are some things insurers use to give an indication of the likelihood of a claim, including the location of your home and your claim history.
While each insurer will probably have a slightly different process for working out what your premium should be - that’s why you’ll get different quotes when you shop around for home insurance - there are some basic things that are common to most of them.
These common factors that could affect how high your premium is, include:
You might have noticed that when you renew your insurance, your premium sometimes rises, even if you haven’t made a claim, or changed any of your circumstances. Unfortunately, there’s nothing you can really do about this, since it’s tied up with the costs of doing business for your insurer and the wider market conditions.
Here are some of the reasons your premium might have gone up.
There are also some reasons for a rise in your home insurance premium that you do have some control over, such as an increase in your individual risk (usually because you’ve made a claim or your circumstances have changed somehow) or you may be insuring something more valuable than before. For example, if you’ve recently tricked out your home office with all the latest gadgets, your contents insurance premium will rise.
That’s why it’s a good idea to review your insurance at the end of each year and compare your renewal offer against the other deals on the market. There just might be an option out there that could save you hundreds or even thousands of dollars.
In a nutshell, the excess is the amount you have to pay if you make an insurance claim. So, say for example, your neighbour throws a ball through your window and you want to claim it on your insurance. If the window is worth $500 to fix, and your excess is $200, your insurer will keep the $200 and give you $300 to fix the window.
The other thing you should know, is that you can choose the level of excess you pay. If you opt for a low excess, you’ll generally pay higher premiums. But on the flip side, choose a high excess, and your premiums will be low. Here’s an example:
It can be tricky to decide which excess is right for you but keep in mind that securing the lowest premium by pumping up your excess is not always the best move. It will mean that your insurance company will pay you less money in the event of an emergency - which is when you need it most!
The limit of cover is the highest amount that your insurer will pay out on a certain insured item when you make a claim on your home insurance. So, for example, your policy might have a limit of $10,000 on home office equipment. That means if your home office is broken into, you can only claim up to $10,000, even if $12,000 of computers, scanners, printers and other equipment are stolen.
Limits aren’t always dollar figures - if your insurance policy covers the fence surrounding your property, there might be a limit of up to 500 metres covered. So if your fence was 550 metres long and the whole thing had to be repaired after a storm, you couldn’t claim for 50 metres of it.
Now let's get down to the nitty gritty of your home insurance policy. It’s important to have a good understanding of your policy and how it works, so that you know what you’re covered for and what might stop you from making a successful claim. The last thing you want is to be left with a huge repair bill because you didn’t read the fine print!
What’s covered by your home insurance policy will depend on which policy you choose, which insurer you go with and the level of cover you opt for. Having said that, here are some of the things that should be covered by almost any home insurance policy:
Got something special? You can also opt to purchase extra cover for valuable items, such as jewellery, antiques, collectibles or sports equipment. Keep in mind that this will mean higher premiums (in some cases much higher).
Just as important as knowing what is covered by your home insurance, is knowing what isn’t. Here are some of the major general exclusions to home insurance that you should be on the lookout for.
Fires, floods and storms are a serious concern for many Aussie homeowners - being underinsured when a natural disaster happens can mean big cleanup bills. So it’s important to make sure that your home insurance policy not only covers natural disasters, but has an adequate level of cover to pay for your rebuilding and repair costs.
Cover for natural disasters is included in a lot of policies, but if you live in an area prone to disasters, it might be a good idea to look at some additional cover.
If you’re not in a risk area for natural disasters, you’ll still likely pay a premium for it. This might seem unfair and tempt you to go hunting for a less expensive policy that excludes cover for events you’re not at risk for - but before you do, make sure you definitely don’t need the option of being covered! After all, nobody plans for an accident to happen - that’s why they’re called accidents.
Since disaster cover is pretty standard for home insurance policies, what might be useful for you to know is what is not included under the cover.
Generally speaking, you’ll be protected against loss or damage from fire, including bushfires. But you aren’t covered for:
There’s also often a waiting period of around 48 hours between when you purchase your policy and when bushfire cover begins, unless:
the policy is a renewal of the policy you previously had to cover the same building
or you have only just bought the property
Your policy will usually include cover for storm damage, except:
Like fire cover, there’s usually a waiting period (often between 48-72 hours) between when you buy your policy and when the storm cover is activated, unless it is a policy renewal on the same building, or you’ve only just bought the property.
Flood cover protects you against water damage from overflowing rivers, lakes or other bodies of water, not including the ocean. But you aren’t covered when damage is done
As with the other two types of disaster cover, there is often a 48-72 hour waiting period between when you purchase your policy and when cover for flood damage begins.
In 2016, there were more than 70,000 Aussie properties listed on AirBnB. That’s a lot of people renting out spaces - but as AirBnB becomes an increasingly popular way to make money with your home, it’s important to know how it works as far as your home insurance policy goes.
Generally speaking, if you’re hosting an AirBnB stay, you’ll be covered by AirBnB’s Host Protection Insurance. This is a short-term rental policy, and includes liability cover and if you’re lucky, for any damage done to your home.
But that’s not an airtight scheme, and generally speaking, most regular Australian insurance policies won’t cover AirBnB guests, either because they aren’t considered residents of the property, or because AirBnB hosting is considered a ‘business activity’ which is excluded from most home insurance policies.
Your best bet is probably going to be to take out landlord’s insurance. Many of these policies are designed for long-term rental properties, and may not cover stays any shorter than a few months. But you can find landlord’s policies specifically designed for short term stays, which is exactly what you’re looking for.
This will mean you’re covered for things like accidental damage, theft or malicious damage by a tenant/guest and liability if your guest is injured on your property. It also covers loss of rent - so if your guest runs out the door without paying, or causes damage that means you can’t book in another guest for a while, the loss of income from that should be paid by your insurance.
Short answer? Yes, but only in certain circumstances.
Your insurer can cancel your policy with a minimum 3 days notice period (although most will give longer). Keep in mind that if your home insurance is cancelled, next time you apply for a policy your premiums will likely be higher, because you’ll be seen as risky.
The reasons why a policy might be cancelled include:
There’s a difference between an insurer cancelling your policy and choosing not to renew. When it comes time to renew your home insurance policy, your insurer needs to inform you in writing 14 days before the policy runs out. Usually, the insurer will take this chance to send you a new contract, which you can agree to if you think it’s a good deal.
But your insurer can also choose not to renew your policy at this point. Unlike cancellation, which can only happen in specific situations, your insurer can basically choose not to renew at its discretion.
The good news is that, also unlike cancellation, non-renewal won’t often result in your premiums being higher with your next insurer.
Yes. If for some reason you decide you want to cancel your home insurance policy, you can usually do so by giving your insurer a call.
You have a couple of options when cancelling. You can:
If you choose the latter, remember that you may not be entitled to a refund of your premium after the cooling off period, which is typically around 21 days.
Here’s the thing: your home insurance policy is as unique and personal as your home. That means there’s no one size fits all option, and chances are you’ll want to talk to a professional before picking your policy.
But that doesn’t mean you can’t do your research, compare your options and know what you’re getting into. Here are some of the main things to keep in mind when choosing your policy:
Instead of simply opting for the cheapest deal around, compare your options and consider what you’ll need to get out of your policy. For example, if you live in a flood zone, paying a higher premium for extra flood cover could be a wise investment.
Opt for total replacement cover and you’ll usually pay higher premiums. Sum-insured cover, which is more common, will likely mean your insurance payout is a little less, but your premiums will be lower.
If this is something that applies to you, it’s worth thinking about buying extra coverage for these things, so you aren’t left out of pocket in an emergency.
Applying for a home insurance policy is easy - you can usually do it online, over the phone or in a branch if you’d rather talk to a flesh and blood person. The insurer will run you through the process, but here are some of the basics to get you started.
You’ll want to shop around when you choose a home insurance policy - it might save you hundreds, or even thousands of dollars. Which means the place to start, is by checking out the deals available at the moment, and getting some quotes that are tailored to your needs.
The easiest way is to either jump on the insurer's website directly or use an online comparison tool, which compares multiple insurers at once.
When you apply for a home insurance quote, you’ll need to have:
Also, be ready to field questions about your “risk level”. This could include things like whether you’re in an area prone to flooding or vandalism.
You'll also need to have some idea of what kind of policy you’re after by the time you apply. This is because you’ll have to specify a few things on your application, and even when you get a policy quote. Here are some of them:
Now for the really important part: how to not pay way too much for a home insurance policy. Because, yes, home insurance is important and necessary. But that doesn’t mean you should pay through the nose for it.
Here are our top tips for snagging a good home insurance deal:
So you know all the tips to save on your home insurance, but what about the pitfalls that homeowners fall into? Well, don’t worry, we’ve listed them here, so you can remember and avoid these common mistakes:
What is averaging? Say the value of your property is $600,000 - so it would cost $600,000 to completely rebuild it. If you’ve insured it for $480,000, or 80% of its full value, then your insurer can ‘average’ any claim you make to 80%. Check out this example:
If something unfortunate happens and you do have to make a claim on your home insurance, there are a few steps you should follow:
These days, you can usually lodge your home insurance claim online or over the phone, but some insurers might still require you to download and fill out a claims form. There are some things you’ll need to have on you when making a claim. Follow this handy checklist to make sure you’re ready to go.
Do you have: