Five common misunderstandings about home and contents insurance

Five common misunderstandings about home and contents insurance

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

For any Australian homeowner, what’s inside the home is often as valuable as the home itself. The contents of your home have sentimental value as well, whether it’s 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. 

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

To ensure coverage during such instances, consider purchasing an additional personal effects policy. A home and contents insurance policy may not cost as much as buying insurance separately for your home and your belongings separately. However, you’ll need to ensure that the policy actually covers all your belongings. 


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

Even if you buy 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. You should ideally discuss such exclusions with your insurer before buying your insurance policy.


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 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 surprising differences 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.

Did you find this helpful? Why not share this article?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

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. 

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.

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.

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.

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.  

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.

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. 

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.

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.

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.