What's the best home and contents insurance for natural disasters?

Severe weather has surged home insurance premiums across Australia, from coastal cities to interior bushlands. Mozo's research found that 22% of policyholders have had to reduce their level of coverage to relieve the cost pressure – but this can be a disaster in itself.

While cheap home insurance can be great, you get what you pay for. If money is tight, it’s even more crucial to ensure you have a policy that adequately protects you. Otherwise, underinsurance could leave you severely out of pocket when the disaster strikes.

“Insurance is there for when things go wrong,” explains Honey Insurance chief operating officer Angelo Azar in an interview with Mozo. 

“It’s for yourself – it’s not for anybody else. And you may feel you’re never gonna make a claim, but I don’t think anyone wakes up in the morning and thinks, ‘Something bad’s going to happen to my house today.’”

No single policy will suit everyone, so balancing cost with your needs is essential. And with climate change making severe weather events more frequent, now’s a great time to review your policy and ensure you’re getting the value you deserve.

Here are some strategies for finding the best home insurance policy against natural disasters.

NOTE: Interview has been edited for length and clarity.

Home insurance covers many types of natural disasters, from earthquakes and volcanic eruptions (which do happen in Australia) to the depressingly commonplace threat of bushfires and floods. In insurance lingo, these types of incidents are called ‘catastrophe’ claims instead of ‘everyday’ claims like burst pipes. 

If a policy doesn’t include a specific natural disaster as standard, you may be able to tailor your coverage by purchasing it as an optional extra. Either way, limits and exclusions will apply, so it’s vital to read the product disclosure statement (PDS) to get a clear picture of what a policy entails, including when you’ll have to pay an excess. 

Disaster cover typically only compensates costs related to damage from the insurable event. Some policies will include total loss or replacement cover (up to your sum insured) as a standard if your home is destroyed, while others only have this as an optional extra. 

A few policies also offer underinsurance protection (usually up to 20% of the sum insured), so if you get caught out with insufficient coverage, you have some wiggle room. 

Common exclusions may apply, on the other hand. Watch out for: 

• Actions of the sea. King tides, coastal erosion, landslides, and storm swells typically do not receive coverage because they’re inevitable risks of seaside living. Sometimes storm surges receive coverage, but only following an insurable event like an earthquake, cyclone, or tsunami.
  
• Damage exacerbated by preexisting wear and tear or negligence. Poor maintenance, in general, is an insurance no-no, since by not looking after your place properly, you’re adding to your claims risk.
  
• Disasters that fall outside of the provider’s definitions. For example, many providers define floods as overflow from an existing river or water supply, like a dam – not runoff or rain catchment in low-lying areas.
  

Knowing the benefits and limits of your coverage helps give any future home insurance claims the best chance of success. 

“Fifteen per cent of home claims are declined every year,” says Azar, “and most customers will be declined because of maintenance-related issues since people don’t realise that that’s not covered.”

“They aren’t claiming knowing they’re not covered – they’re claiming because they think they are.”

While no one policy is best for natural disasters, there are ways to ensure you get the most out of your coverage. Chiefly, it’s critical to review your policy, balance your needs and risks against price and conditions, and keep at the daily upkeep.

Let’s take a brief look at the most common natural disasters from a home insurance perspective: what’s covered, and what’s not.

Bushfires

Thankfully, we’re unlikely to have a summer as bad as Black Summer in 2019 - 2020 for a few years, but scientists say it’s inevitable. Therefore, reviewing your bushfire cover is critical before the next crisis hits. 

Typically, providers combine bushfires, grassfires, and household fires under general ‘fire cover’ in their home & contents insurance policies. Limits apply, often up to your sum insured. 

Some common exclusions for bushfire cover include:

• How close the fire got to your home. You may not be covered if the bushfire was more than 100 metres from your property and only caused smoke or heat damage (like melting or scorch marks). 
  Cover waiting periods. Bushfire loss or damage within 48 - 72 hours of buying the policy typically won’t receive coverage. This prevents customers from hearing about something on the local news, buying a policy, and claiming immediately. However, you may be covered if you’ve switched home insurance policies or recently purchased your home. 
  

Additionally, some policies only include bushfire cover as an optional extra, not standard cover.

Floods

Flood insurance has become a sad necessity in the past two years after repeated heavy rainfalls swamped the east coast. Azar points to the 2022 floods as one of the main drivers behind premium increases. 

“Ordinarily, catastrophe claims would make up 5 to 10 per cent of an insurance company’s volume, depending on where they are, but a much higher percentage of their costs,” says Azar. More catastrophes mean more costs to the company, hence price increases. 

Unlike fire cover, which typically comes as a standard, flood cover can be highly variable. Many providers only include floods as optional extras, while others will have strict definitions of what counts as a flood in the first place.

For example, most providers define a flood as overflowing water from an existing source, like a river, creek, or dam. Runoff down a mountainside or swelling pools in your backyard, however, likely don’t count. Storm surges or heavy tides after flooding usually don’t apply, either. 

RELATED: What happens if your rental property gets flooded?

If flood cover is included, it’s usually only up to your sum insured. Eligible damages may include mould, motor burnout, food loss, contents loss, structural impacts, or total loss – but all claimed damage must come from an insured flooding event. 

Common flood insurance exclusions may apply, such as:

• Water damage from gradual processes, like rising damp. 
  
• Hydrostatic pressure build-up. 
  
• Power surges (unless from another insured event, like a lightning strike).
  
• Damage or loss from erosion, landslides, subsidence, and earth movement (unless solely caused by the flooding event within 48 - 72 hours). 
  
• Damage to outdoor gardens and lawns, swimming pools, or awnings. 
  
• Flood damage that occurs within 48 - 72 hours of purchasing your policy. 
  

It’s also important not to confuse your flood cover with cover for leakages within the home, such as water escaping from dying fridges, ruptured Flexi-hoses, or burst pipes – even waterbeds.

Storms and cyclones, including lightning, snow, and hail

Closely related to flood cover is storm cover, which typically applies to severe weather like hail damage, lightning strikes, and even cyclones. Cover may also include storm surges here, depending on the provider. 

Storm cover can include the following:

• Power surges, scorching/fire, and electrical damage due to a documented lightning strike.
  
• Hail damage to your roof. 
  
• Stormwater damage. 
  
• Broken glass and tree/limb impact (provided the tree was well maintained).
  
• Snow damage. 
  

Again, common exclusions may apply, such as:

• Storm damage occurring within 48 - 72 hours of buying a policy.
  
• Damage that occurs after the stormwater reaches the ground (usually covered under ‘runoff’ if the policy includes it).
  
• Damage or loss to pools, free-standing walls, gardens and lawns, and exterior paint. 
  

Landslides, erosion, and ground movement

Unfortunately, unless explicitly stated or the result of an insurable event, home insurance will generally never cover landslides, erosion, and ground movement such as subsidence.

Azar explains this is due to the inevitable nature of landscape changes like erosion.

“If you have a home sitting on the water, there will be impacts like erosion,” he says, adding, “even just the salt hitting up against your home.”

Otherwise, providers would have to charge the total amount to customers to cover them. 

“What we don’t do as an industry – and shouldn’t do – is include coverages within a policy that a customer is not gonna draw any value from.”

RELATED: Buying property? Consider this home insurance checklist before signing

So if landslips are a feature of your seaside living, it may be better to save your money than sink it into a generic home insurance policy that won’t adequately cover you. 

“‘Actions of the sea’ would be an exclusion in every single policy you look for today,” warns Azar, “unless you go and get a specific policy designed for you by a broker – which is possible, at a price.”

Earthquakes, tsunamis, and volcanic eruptions

While earthquakes, tsunamis, and volcanic eruptions are unlikely in Australia, they aren’t impossible. Parts of Victoria were shaken up in September 2021 after a minor faultline shift produced a 5.9 magnitude earthquake, while tsunamis and volcanic ash frequently drift our way from nearby regions along the Ring of Fire. 

Providers will typically cover up to your sum insured if your building and contents get damaged by an earthquake, tsunami, or volcanic eruption, but remember exclusions like negligence and unexpired waiting periods may apply.

Thankfully, natural disasters are relatively uncommon, even if their frequency has increased due to climate change. (According to the Climate Council of Australia, this rising frequency means one in seven homes in disaster-prone areas will be uninsurable by 2030).

The Australian Labor government has pledged $1 billion in funding to natural disaster relief over five years to help Aussies weather some of the impacts. But since this isn’t a blanket solution, how can customers prepare for natural disasters? 

Azar recommends first looking to the professionals, namely your local SES and Rural Fire Service, for practical steps for protecting your home. 

“They do a really great job in supporting communities, and they have resources around what you can do to make your home safer,” says Azar. “It’s absolutely important for people to look at those resources and see what they can do.”

Looking after your property also goes a long way to softening the severity of claims, says Azar. 

“I have seen customers’ homes – and this isn’t the norm, but I have seen them – where they literally sat in the line of a bushfire, but because they’ve maintained their gutters or put a sprinkler piece out front, their home has come through with just minimal damage compared to some of the others around them.”

Customers can’t prevent claims altogether – this is why we have insurance, but a little daily T&C manages the risk for catastrophes and everyday accidents.

“It’s hard for the insurance policy to say, ‘Here’s what you should do,’ because most catastrophes, unfortunate as it is, you can’t really do much about it,” says Azar. 

“But the day-to-day ones, you can. You can do a lot.”

Protection against climate change requires more than just insurance. Read our new green finance guide to see how you can save the planet – and money – through ethical banking.

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