What disasters can home insurance cover?

Australia’s unique landscape is known for many things, from our stunning beaches to our iconic red centre. However, it’s also known for its harsh and unforgiveable environment – particularly in summer.

When you live in Australia, considering how a natural disaster may impact your home is an unavoidable reality. This is where home insurance can be a lifeline for disaster-affected households.

But not all home insurance cover is created equally. In fact, areas that are more prone to disasters may see residents charged sky-high premiums.

If you’re looking to buy a home in Australia, it’s crucial that you know what disasters home insurance can cover. And, more importantly, how you may be charged for that coverage.

Disaster-prone areas

If you’re looking to take out home insurance, you’ll need to find out if your home is in a natural disaster-prone area.

To do this, you’ll want to contact:

  1. Your broker/real estate agent – they should be able to tell you key features of your property’s area.
  2. Your local council.
  3. Emergency services organisations in your area.

In Australia, two of the most common disasters are floods and bushfires. Some of the key things to be asking when looking into whether your property is in a disaster-prone area is flood mapping and historical flood records as well as your property’s Bushfire Attack Level (BAL) Rating.

Your BAL Rating may influence any premiums you may need to pay to receive home insurance coverage. The BAL Rating is a 5-level scale, ranging from low risk to extreme risk:

  • BAL-12.5 – low risk
  • BAL-19 – moderate risk
  • BAL-29 – high risk
  • BAL-40 – very high risk
  • BAL-FZ – extreme risk (Flame Zone)

Unfortunately, in some cases insurers may choose not to provide insurance if they think that the risk of a significant claim being made is too great.

Insurers look at a range of factors to come to this conclusion, including your claims history, the history and/or cost of natural disasters in your area, the year your home was built, the construction materials of your home, and much more.

What disasters are considered in home insurance

Depending on where you live, these are some of the disasters you should be considering when selecting the right home insurance for your property:

  • Floods – inland flooding accounts for nearly a third of insured losses in Australia.
  • Earthquakes — although Australia doesn’t have a high incidence rate of destructive earthquakes, there have been enough, four to be exact, in the last 40 years to make it worth considering as a key point of coverage in any potential policy.
  • Cyclones — particularly if you are in the Northern Territory and northern parts of Queensland and Western Australia.
  • Bushfires — there aren’t many parts of the country that are immune to the risk of bushfires, and we have seen multiple significant losses, particularly in recent years as the climate appears to be increasing in dryness and warmth, both of which are prime conditions for bushfires.
  • Hail — severe hailstorms have become an increasing threat in recent years, and they have the potential to cause significant damage.
  • Storms — as with bushfires, severe storms have the potential to cause widespread damage across most parts of Australia.”

Source: AustBrokers Coast to Coast Insurance Brokers.

Once you’ve determined if your property is in a disaster-prone area, and what kind of disasters you may be affected by, you’ll have a better understanding of what you may be charged for coverage.

Case study: Catastrophic Australian bushfires

The Australian bushfire season that began in September 2019 was a catastrophic event that received global attention. New South Wales was most significantly impacted, with the fire spreading across the country, particularly in the east coast.

An estimated 18 million hectares was destroyed, including more than 2,000 houses. Most significantly, 34 people were killed as well as billions of wildlife.

The economic impact of these bushfires is set to exceed $4.4 billion, which left many of the Australians whose homes were destroyed wondering if their home insurance many not be able to cover the impact.

In January, Insurance Business Magazine spoke to Michael Vine, a director in the financial services ratings team at S&P Global Ratings about these concerns. Mr Vine explained that “even with the bushfires on such a scale this early during the season, insurers should be able to absorb losses stemming from the crisis.”

However, a recent ABC News article noted that following the devastating bushfire season, insurance premiums increased by almost 50 per cent.

How your postcode determines your premiums

Insurance premiums are simply the amount of money you pay for your insurance policy. Insurers are constantly looking at data to measure the amount of risk involved in insuring your property.

If natural disasters are constantly reoccurring in your area, it’s inevitable that your insurer will increase these premiums. This is to account for the level of risk involved in insuring your home.

For example, if it’s highly likely your home will be hit by a flood every few years, and your insurer will need to pay you for damages, the insurer will increase the premium for having home insurance for this disaster.

If you choose to live in the Northern half of Australia, particularly along the coastline, it is common that you may be charged higher insurance premiums than the rest of the country.

In fact, the ACCC recently reported that home, contents and strata insurance is becoming so “increasingly unaffordable” in Northern Australia, that the rate of households going without insurance is double the rest of the country.

“For example, Townsville residents pay an average of $3,088 a year for home and contents insurance, but 10 per cent of those residents face insurance premiums of $4,682 or more” noted the ACCC report.

Northern Queensland is so frequently impacted by disasters, such as cyclones and floods, that the Northern Queensland Government website designed its own comparison page on home insurance. This allows residents to carefully compare potential insurance costs as insurance premiums are so much higher here than in other parts of the country.

TIP: Insurance premiums are an important part of policy decision – but they’re not the only part. When choosing your home insurance coverage, it’s important to also look at what the policy covers, its features, claim exclusions as well as any caps. This can help you to choose the right policy for your specific home and financial needs.

Planning for disaster

Unless you have a crystal ball, it’s impossible to predict how a natural disaster may impact your home. However, insurers will try and do just this.

This is why it’s crucial that you do your research around whether your property is in a disaster-prone area and what insurance premiums are offered by a range of insurers, so you’re not surprised by any potential costs.

As the impacts of climate change are expected to worsen in Australia over the next decade, choosing the best home insurance for natural disasters for your budget is more important than ever.

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Learn more about home insurance

What is a home insurance premium?

Your home insurance premium is what you pay your insurance provider for covering your home under their home insurance policy. It is calculated based on the type of coverage you choose for your home as well as any additional coverage you buy for either your possessions or specific incidents. Your premium can either be paid annually or in smaller instalments. 

Your home insurance policy may cover the total replacement cost, which is the actual expense of rebuilding your home from scratch. Alternatively, it can cover an insured sum, which is a predetermined estimate of what it might cost to rebuild your home. You’re more likely to pay a higher premium for total replacement cover than for insured sum coverage.

Apart from selecting your coverage, you’ll have to figure out your excess, which is the amount you pay out of your own pocket for each insurance claim. If you are okay with paying a higher excess, your insurance premium may be lower. Conversely, if you choose a lower excess, you may pay a higher premium. 

Your insurance premium can also be higher if you live in an area prone to incidents like floods, bushfires, or theft, as insurers are more likely to receive a higher number of claims in such neighbourhoods. 

If you also want to buy insurance for your belongings, a combined home and contents insurance policy may have a lower premium than paying premiums on separate policies for your home and your belongings. 

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.  

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. 

What does home insurance cover?

What home insurance specifically covers and the extent of the coverage depends on the insurance provider and the individual policy. However, home insurance typically covers the property and other permanent structures found on or in the property, such as fences, in-ground swimming pools, garages, and dishwashers, to name a few.

There are usually two types of homeowner's insurance you can choose from, with "total replacement cover" or "sum-insured cover". 

If you’re not sure which option to take, it may be worthwhile to speak to a professional valuer to understand how much it might cost to rebuild your home and replace what's inside.

How do you compare home insurance rates?

When you compare the home insurance quotes offered by various Australian insurers, consider looking at the type of coverage they offer as well as coverage limits and exclusions. You can choose an insurance policy which covers either the total replacement cost, which is the actual cost of rebuilding your home from scratch, or a fixed insured sum, which is an estimate of the cost to rebuild. The home insurance policy is likely to cost you more if you go for the total replacement cost coverage.

Your insurance policy’s exclusions and coverage limits usually depend on how exposed your home is to adverse events like floods and bushfires. It also tells you the maximum compensation that your insurer is likely to pay for damage caused to your home. If you live in an area with a greater incidence of crime or disasters, your insurance policy will likely cost you more.

The amount you actually pay for home insurance can be adjusted by agreeing to a higher excess, which is what you will pay over and above the insured amount from your own pocket. You should consider using the online calculators provided by various insurers to check how different coverage limits affect your insurance premium.

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.

How much is home insurance?

How much your home insurance could cost and the amount of premiums you pay will depend on many factors, including the amount you need to cover, the excess you're willing to pay, and what type of cover you want to take. 

It's important not to base your insurance policy decision solely on the premiums being charged, reviewing what the policy covers, its features, claim exclusions, and caps when deciding which home insurance policy is the right one for you.

Are bikes covered under home insurance?

Ordinarily, home insurance only covers damage to your house, which can include additional buildings such as garages, sheds, and fences, as well as permanent fixtures. 

However, to protect the items located in your home or in any of these other buildings, you will likely need to purchase home and contents insurance. Even so, your bike would only be covered if it does not require separate vehicle registration, as is the case for bicycles and 50cc minibikes, but not motorcycles, and only when located on your property, parked or otherwise. 

Depending on the cost of your bicycle or minibike, you can have it listed in your home and contents insurance as a high-value item. You'll want to check your insurer’s Product Disclosure Statement (PDS) to know the normal coverage limit for a bike included as part of your home and contents insurance, as well as the incidents which are covered. 

Insuring your bicycle can be distinct to insuring any personal effects on your bike at the time, or even using the bike when you're out and about. If you want to cover those, such as something in a basket or a camera equipped to the bicycle, or the bike itself as you travel, you will likely need to purchase additional personal effects insurance. You can also read about any additional coverage available under the personal effects policy, though for full coverage, an ideal option will likely be a separate bike insurance policy.

Is hail damage covered by home insurance?

If storms are among the incidents covered by your home insurance policy, hail damage protection is more than likely assured. While all policies differ based on your needs and what a home insurance provider will offer, some things are close to a certainty. 

Extreme weather events tend to be unpredictable in their severity, but dangerous all the same. You'll never be able to fully prepare for any damage caused, be it lightning, strong winds, rain leading to flooding, or hailstorms, but home insurance can at least provide you with a way to deal with life's unpredictable nature. 

If your home suffers from hail damage, you can file a claim with your insurer. In the event that this happens, remember to take pictures of any hail damage as an insurance adjuster will need to evaluate the impact on your home. Any additional wind damage to your roof will also need to be documented similarly.

You may want to check if your home insurance also covers hail damage to the cars parked on your property, and then file the claim for the total damage caused by the hailstorm. Once your claim is approved, your insurer should offer you either a cash settlement or refer you to a network vendor for the necessary repairs.

Does home insurance cover termite damage?

It is unlikely that the average home insurance policy will cover damage caused by termites, mice, or other vermin, which are typically the result of negligence. For instance, water may have seeped from a heater or washing machine and dampened the woodwork in your home, attracting termites. Since termites usually build colonies, you’ll need to deal with the existing infestation and also take preventative steps to prevent future termite damage.

Treating your home for termite damage can be quite expensive, and you’ll likely have to make significant repairs depending on the size of the infestation. You may want to check if your neighbours have also had termite damage issues, and consider taking more long-term measures to keep termites away.  For example, you could install a chemically-treated soil barrier or baiting station, both of which may be effective for a few years. 

Consider inspecting your home  for any leakage or seepage from time to time, especially in the flooring or the outer edges of your home, as a precaution against damage by vermin. You may also want to consider hiring a pest control professional who can inspect and treat your home to protect against termites.