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What is home insurance?

Home insurance is an insurance policy that covers one of your most important assets – your home. If disaster strikes and your property suffers accidental damage, malicious damage, or is even destroyed, you may be financially covered, allowing you to more easily make a fresh start.

The two most common types of home insurance cover are Total Replacement cover and Sum-Insured cover. 

Total Replacement cover refers to the actual cost of replacing your house entirely, whether by rebuilding, renovating, or repairing after heavy damage. This kind of home insurance policy will likely cost more, and possibly require extended negotiations with the insurer. 

A Sum-Insured policy covers a predetermined maximum cost to be paid by your insurer – the insured sum - in the event your house gets damaged. Setting the insured sum can be tricky; if it’s too high, you may pay more than is necessary for your insurance premiums, and if it’s too low, the payout may fall short of the actual cost of repairing or rebuilding your home, leaving you underinsured and having to pay for repairs out of your pocket.

How does home insurance differ from home and contents insurance?

Home insurance (sometimes called building insurance) only protects the structure of your home, not the personal belongings that your home contains. To protect both of these, you’ll need home and contents insurance. This may be a single combined policy that covers both your home and its contents (combined home and contents insurance), or separate policies covering each.

If you buy a home and contents insurance policy, you can recover the cost of replacing any accidental loss or damage to your possessions if disaster strikes, in addition to the cost of renovating or rebuilding your home. This can include furniture, white goods, electrical appliances, computers, jewellery, and artworks.

In many cases, home and contents insurance covers water and fire damage caused by accidents inside the home, as well as theft and vandalism. You can also purchase additional insurance coverage, called "personal effects cover" for portable contents that you may carry outside the home, such as laptops. Insurers may also offer optional coverage for any high-value items you may own. 

Before you purchase a home and contents insurance policy, remember to compare insurance quotes online.

Do I need home insurance for a home loan?

If you’re purchasing a home with the help of a home loan, you may need to take out home insurance on the property. Home insurance is often a requirement for home loan approval, and you may be advised by the bank or your broker to purchase home insurance for the property ahead of settlement.  

If you’re purchasing a unit, townhouse, or similar property, the strata corporation that manages the complex may already have insurance in place covering damage to the structure, partially paid for by your strata fees. This may be enough to satisfy your bank or mortgage lender, so you may not need to take out a separate home insurance policy to get a home loan on a strata property.

Of course, you may still choose to take out a contents insurance policy to protect the possessions in your strata property, as this likely won’t be covered by your strata’s insurance over the complex.

Do renters or landlords need home and contents insurance?

Neither renters not landlords are owner occupiers, so they may not require traditional home and contents insurance policies. However, both renters insurance and landlord insurance options are available to cover the risks specific to these customers. 

Contents insurance alone may be an option for renters to consider, as it may be able to protect their belongings from theft or vandalism even if they don't own their home. 

Landlords may be able to benefit from landlord insurance, which is similar to home insurance for their rental property but also covers risks that specifically relate to property investment, such as defaulting tenants, and may also provide some legal liability.

Do I need home and contents insurance?

Home and contents insurance isn’t always essential, but it can be valuable in the right circumstances. For example, if you were to lose your house in a fire, home insurance may cover the cost of rebuilding, as well as other expenses such as temporary accommodation for you and your family. But unless you also had contents insurance, you’d have to pay for replacing your treasured possessions yourself.

Home and contents insurance may also help cover a wider range of options than home insurance alone. For example, if your home experienced a break-in, your home insurance may only cover the cost of broken windows or busted locks, while the contents insurance may allow you to replace your stolen possessions without ending up out of pocket.

Contents insurance alone may be an option for renters to consider, as it may be able to protect their belongings from theft or vandalism even if they don't own their home. 

Landlords may be able to benefit from landlord insurance, which is similar to home insurance but also covers risks that specifically relate to property investment, such as defaulting tenants, and may also provide some legal liability.

Who pays home warranty insurance?

Home warranty insurance is a type of compulsory insurance cover that’s required for builders undertaking significant construction projects. It’s known by different names in different states and territories, and its exact requirements may also vary.

While it’s your builder who will take out and pay for home warranty insurance cover, the cost may be passed on to the builder’s client.

What does home insurance cover?

What your home insurance policy covers and what it excludes can vary based on your provider, as well as the policy purchased. A home insurance policy typically covers your entire property, including permanent structures such as fences, in-ground swimming pools, garages, tool sheds, and walk-in wardrobes.

While each policy may be different and depend upon your type of cover and level of cover, some of the common events that may be covered under home insurance may include:

  • Accidental damage
  • Breakage of glass and ceramics
  • Earthquakes
  • Escape of liquid e.g. burst pipes
  • Explosions
  • Fallen trees
  • Fires
  • Floods
  • Lightning strikes
  • Malicious damage
  • Rainwater
  • Storms
  • Vandalism

There are usually two types of homeowners insurance you can choose from. The type you choose helps determine the level of coverage you will receive:

  • Total replacement cover: covers the cost to repair or rebuild your home to the state it was before the insured event occurred. You won’t find this option with every insurer and where it is available, you can expect it to be more expensive.
  • Sum-insured cover: covers your home to a maximum amount pre-determined by you. This is the amount that you estimate it would cost you to rebuild your home if it is destroyed or becomes a total loss. This cover type may be less expensive, though a homeowner is more likely to end up underinsured with sum-insured cover.

If you’re not sure which option to take, it could be worthwhile to speak to a professional valuer to understand how much it might cost to rebuild your home.

Your policy’s product disclosure statement (PDS) will give you a clearer picture of the covered incidents or damages, and the limits specified for each. The PDS will also tell you which incidents or contents are excluded and whether you need to purchase additional coverage.

It’s often wise to review your property insurance policy regularly to make sure your house is adequately covered, particularly if you have renovated or extended your home.

Does a fireplace increase home insurance?

A home with a fireplace shouldn’t cost significantly more to insure than a home with no fireplace. However, there may be exceptions in your home insurance policy for damage caused by a fireplace. This includes cosmetic damage such as scorch marks or discolouration from smoke.

Are natural disasters covered by home insurance?

Many home insurance policies cover damage caused by natural disasters, such as earthquakes or cyclones. However, if your home is located in an area with a higher risk of natural disasters, like bushfires or floods, it may cost more to insure.

Does home insurance cover plumbing problems?

Depending on your home insurance policy, you may be covered against some plumbing problems, but not all of them. Generally, sudden and unexpected plumbing problems are more likely to be covered than plumbing problems that occur slowly over time.

This is because most insurers consider these gradual plumbing problems to be preventable, and that this routine maintenance is the responsibility of the homeowner.

A common rule of thumb is that while your home insurance may cover damage to your home caused by a burst pipe, it may not always cover the cost of repairing said pipe.

Does home insurance cover electrical issues?

Much like plumbing problems, some electrical problems may be covered by your insurance policy, though likely not all electrical problems. Generally, damage caused by sudden electrical problems (e.g. lighting strikes, power surges etc) may be covered, electrical problems that could have been prevented with routine maintenance (e.g. fire damage caused by old, frayed wiring) may not be covered.

Does home insurance cover rising damp?

Most home insurance policies are unlikely to cover damage caused by rising damp. This is because rising damp occurs gradually over time, and the homeowner is expected to deal with it as part of routine maintenance.

Does home insurance cover termite damage?

Home insurance does not typically cover termite damage. Insect infestations such as termites are considered a preventable problem by most insurers, which homeowners are expected to take care of as part of their home’s routine maintenance. The same is true for damage caused by other insects, vermin or rodents.

Consider a pest inspection before purchasing a property, and at regular intervals afterwards, to help ensure your property is in good repair and free from the risk of termites and other pests.

Does home insurance cover break-ins?

Home insurance may partially cover you against break ins, though contents insurance may also be required in order to enjoy full coverage.

For example, if a burglar broke into your home through a window, your home insurance may cover the cost of repairing/replacing the broken window. However, replacing or replacing your stolen items would likely fall under contents insurance.  

If you suffer a theft after leaving your home unlocked, or if you haven’t called the police about your stolen items, you may not be able to claim on insurance, as it’s expected that you take reasonable care to protect your possessions.  

How much does home insurance cost?

The cost of home insurance varies based on a wide variety of factors, including:

  • The location of your home
  • The age of your home
  • The type of property
  • The size of your home
  • The features of your property
  • Whether you’re paying annual or quarterly premiums
  • Whether you’re an owner occupier or a property investor
  • What extras or add-ons you want included in your home insurance policy
  • Your claims history
  • Your level of home security

Different home insurers may quote different prices for the same home so it’s important to compare insurance products before choosing a home insurance policy.

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Do home insurance claims follow you?

Even if you switch from one home insurer to another, that doesn’t always mean you get to start again with a completely clean slate and a no-claims discount.

Most insurance providers report information on insurance policies and claims to Insurance Reference Services (IRS), which is a national data registry for the insurance industry. If you fail to inform your new insurer of past claims with your old insurer, and your new insurer finds out about them, you could risk voiding your policy or seeing your new claims denied.

How much is home insurance in Australia?

Some areas of Australia are notorious for their high insurance premiums. This is because Australia’s extreme climate can make some homes particularly vulnerable to natural disasters such as bushfires or floods.

If you live in an area that’s at high risk of experiencing natural disaster, you may find that your insurance quotes are much higher than those for other areas of Australia. You may be able to reduce the cost of insurance somewhat by showing that you’ve taken steps to reduce the risk of natural disasters affecting your property (e.g. cutting back vegetation on your property to help reduce the risk of fire).

Some types of natural disaster insurance (e.g. flood cover) may be considered an optional extra that you can opt out of if your higher than average risk is making your insurance premiums unaffordable. While your home won’t be covered against the event in question, you may still be covered against other damage and misadventures.

How much is home and contents insurance?

A home and contents policy will likely cost more than just a home insurance policy, however you’ll be receiving more coverage that protects your possessions as well as your property.

The cost of the contents portion of your home and contents insurance policy may depend on the estimated value of your home’s contents.  

Much like home insurance, contents insurance is often available with either Total Replacement cover or Sum Insured cover. Total Replacement cover should pay for the cost of replacing your possessions, though the premiums may cost more. Sum Insured cover lets you claim back the cost of lost or damaged items up to a predetermined maximum, which may help to lower your premiums, though you risk being underinsured.

You may also be able to highlight specific high-value items in your contents insurance policy, or insure them separately.

Do you pay home insurance monthly or yearly?

Most insurers will give you a choice of whether to pay for your home insurance monthly, quarterly or yearly.

Making smaller, more regular payments may be less stressful on your wallet than making one lump sum payment. However, the annual total cost of your insurance may turn out cheaper by making a single payment rather than a larger number of smaller payments.

How to compare home insurance

When comparing home and contents insurance policies, consider answering the following questions, as this can guide you in choosing the policy you need: 

  1. What will it cost you to rebuild or renovate your home, and replace all your valuables? What percentage of this cost are you comfortable paying on your own? Which of the insurance policies that you are comparing adequately covers the difference?
  2. Of the shortlisted policies, which ones are most specific in detailing the coverage limits for specific items? Which ones offer you protection against the most common risks in your neighbourhood?
  3. It's worth checking for conditions specific to you. For example, do these policies have any restrictions regarding the presence of pets in the house? 
  4. Check whether the insurance policy covers emergency support, such as temporary relocation while your house is being renovated.
  5. Even if the policy you choose seems to offer thoroughly adequate protection, you may miss out on some optional cover. Always read the insurance provider’s product disclosure statement (PDS) or confirm with the insurance company about any limits, conditions, or exclusions before making a decision to purchase a policy.

Why should I review my home insurance policy?

You should review your home insurance policy periodically to ensure that your house and your possessions are adequately covered. Regular insurance policy reviews can help make sure that your insurer has not added exceptions or changed the coverage limits, and keep your home insured. 

Such a review also helps you keep your policy up to date in terms of changes or renovations to your home. For example, if you decide to build a new tool shed in your backyard but your insurance policy doesn't cover it, you could lose out on coverage if the shed or its contents are damaged. Likewise, if you buy a home and contents insurance policy and acquire high-value items which are beyond the policy coverage limits, your insurance policy will likely require a similar update.

Making insurance comparisons can help give you a better idea of whether it's time to consider switching to another insurer, whose home and content insurance offer better suits your needs.

Type of home insurance do I need?

There are two types of house insurance policies, namely total replacement cover and sum insured cover. The former covers the total cost of rebuilding the house to the same standard before it was damaged. The latter home insurance type covers the cost of damages up to a predetermined limit, which is called the sum insured.

Different types of homeowners’ insurance may offer extra cover at an additional premium, including accidental damage, fire insurance, storm insurance, flood insurance, motor burnout insurance, home and contents insurance, and contents insurance. These extras are not classified as homeowners’ insurance types; include one or more based on your situation. 

Do I need home insurance for a home loan?

While home insurance isn’t necessarily a requirement for a home purchase per se, it’s likely that if you’re purchasing a home with the help of a home loan, you’ll need to take out home insurance on the property. Home insurance can be one of the factors required in the pre-settlement documentation for a home purchase, and you may be advised by either the bank or a broker (or both) ahead of settlement.  

Can you transfer home insurance?

When you sell your home, you cannot transfer the home insurance policy to the new owner. The buyers need to purchase a new home insurance policy where the insurer will calculate the premium based on several factors.

The risk of any damage to the home is transferred to the new owners when you sell the property. You can speak to an experienced conveyancer or solicitor to find out more about when the risk gets passed to the buyers in your state or territory.

If you move to a new home

Can you transfer home insurance to a new property if you move to a new home?

Some insurers may allow you to transfer your policy to a new property as long as you meet certain conditions. These include informing the insurance company as soon as you enter into a contract to buy the new home. You may need to pay an additional premium when transferring your existing home insurance policy to the new property.

What is home insurance?

For homeowners, home insurance can provide some financial protection to your property when things don’t go as planned. If you have home insurance and your property is damaged (or even the permanent fixtures inside), you could make a claim to your insurer to cover the costs of getting it fixed, replaced or rebuilt.

The idea behind property insurance is that you pay insurance providers to take on the risk of loss or damage to your property that you would otherwise be carrying. 

Do I need home insurance?

While homeowners' insurance is not legally required, it’s an option for those who want financial protection for their property. Some mortgage lenders may even require borrowers to take out home insurance.

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.