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Five common misunderstandings about home and contents insurance

Mark Bristow avatar
Mark Bristow
- 4 min read
Five common misunderstandings about home and contents insurance

Your home and the valuables it contains may be irreplaceable, but you can at least recover their financial value if your home and contents insurance includes adequate coverage.

Many Australian homeowners consider what’s inside their homes to be almost as valuable as the home itself. The contents of your home have sentimental value, whether they’re family heirlooms preserved across generations, or your own set of collectibles and memorabilia. Losing such objects or seeing them damaged can be heartbreaking, especially as they may not be easy to replace. 

A home and contents insurance policy may not cost as much as taking out separate policies to cover your home and your belongings. However, you’ll need to ensure that the combined policy actually covers the value of your home and all your belongings. 

If you know or can estimate the cost of your valuables, a home and contents insurance policy can at least compensate you financially, though not emotionally, if something were to happen to your home. You’ll need to make a list of the possessions that the home and contents insurance policy should cover, and up to what limit.

Once you get an estimate of the cost of rebuilding your house entirely and replacing all your belongings, you’ll know how much insurance you may need. If you need help understanding what is and isn’t included, consider reading the insurer’s Product Disclosure Statement (PDS). 

Here are five of the commonly misunderstood aspects of home and contents insurance:

You don’t always live inside your house, and neither do your belongings

You need to remember that a contents insurance policy only covers the objects physically located on your property or inside your house. For example, you may not be able to file an insurance claim if you lose your jewellery or other valuable possessions while on a trip or otherwise outside your home.

To ensure coverage during such instances, check if your insurer offers portable contents cover. This may cost extra, and some specific items may need to be specifically added to the policy or even insured separately, but it can give you more peace of mind while you’re out of the house.

Your insurer may not think your belongings are as valuable as you do

Even if you take out a home and contents insurance policy based on a thorough estimate of the cost of replacing your belongings, you may still end up effectively underinsured if your home’s contents include valuable items that exceed your insurer’s maximum coverage limits. For example, your insurer may cover up to $1000 per item for electrical appliances, but if your $2000 television is stolen, you’d have to pay the difference yourself.

Also, even if your insurance covers the present value of your home’s contents, this may not be enough to replace everything if prices rise in the future. You could choose a higher ‘sum insured’ limit to get extra coverage, or choose an insurer that offers ‘new for old’ replacements, though this could make your insurance more expensive.

Your valuables may be affected by incidents not covered by your insurance policy

When insurers talk about loss or damage, they’re usually referring to theft and accidents. If you misplace an item, or lend it to someone who loses it, it is unlikely you’ll be covered by your insurance. 

Your belongings may also be damaged from incidents that your insurance policy may not cover items like a water leak due to poor maintenance of your home’s plumbing.

Before buying your insurance policy, you should ideally check the list of insured events and discuss any exclusions with your insurer.

You won’t have a fixed number of valuables and will likely acquire new items

As you acquire new experiences in life, you may also collect new memorabilia of these experiences. After owning your home for a few years, you will likely buy a few more valuables, which may also need to be insured. 

It may be helpful to keep an up-to-date list of your home’s contents that you can reassess when updating your insurance. This will help you gauge if you need to upgrade your home and contents insurance policy or purchase additional coverage for some of the high-value items.

The average cost of a home and contents insurance policy can differ from city to city

You’ve successfully listed and evaluated all the contents of your home, you’ve checked the coverage options, and you feel ready to buy your home and contents insurance policy. But when you compare the rates quoted by different insurers, you may find surprises when you enter your postcode. 

Insurance costs can vary depending on your location. For example, if you live in an area with a higher crime rate, or at a higher risk of natural disasters, insurers may charge higher insurance premiums or require you to buy additional coverage for specific events.

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Product database updated 14 Jul, 2024

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