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Helpful tips for choosing a home insurance policy

Mark Bristow avatar
Mark Bristow
- 4 min read
Helpful tips for choosing a home insurance policy

Buying home insurance can be a confusing process, especially if you’ve never done it before. You’ll need to compare policies from different providers to understand what is and isn’t included, and to what extent. Insurers use terms like coverage, exclusions, and limits, which you’ll need to understand in detail. 

You’ll also have to choose between a policy that covers your home’s total replacement cost and one that covers an insured sum. The cost of your home insurance policy may depend on your coverage amount, and also on your excess, which is how much you agree to pay out of your own pocket for each claim.

You could consider buying a combined home and contents insurance policy instead of standalone home insurance, especially if you are also planning to insure your valuables. A combined policy will usually cost you less than two separate policies. Whatever the cost, you should ensure that the contents insurance policy you buy covers the full cost of your valuables from damage caused by most insured events.

Deciding between Total Replacement and Sum Insured coverage

There are two main types of home insurance coverage to choose from.

The first involves coverage for the “total replacement” or actual cost of rebuilding your home. This may also cover any rise in material prices or your expenses towards renting a temporary home. However, you may pay a higher premium for this type of insurance. 

The other type of home insurance policy will cover an insured sum, which is an estimate of the cost of rebuilding your home. Such an estimate may fall short of the actual cost, which could leave you underinsured. However, you may pay less for a home insurance policy covering an insured sum.

Choosing between home insurance and home and contents insurance

While your home is likely your most precious asset, your belongings can also be expensive, as well as having sentimental value. High-end smart televisions, laptops, or precious collectibles can be difficult to replace. If you’re concerned about protecting such objects, you may want to consider buying home and contents insurance. 

Home-only insurance could be helpful when you want to insure a property’s bricks and mortar but not its contents, such as if you’re the landlord of an investment property, or if you want to manage your contents insurance separately. Similarly, contents-only insurance could be valuable for renters who don’t own their home but still want to protect their possessions, or for owner-occupiers of strata units whose home is already covered by strata insurance.

You may need to compare several home and contents insurance policies to see which offer adequate coverage for various items against different damaging events. While you may be able to customise your policy, some high-value items may require you to buy additional coverage or a separate standalone policy.

The difference between accidental and gradual damage

The average home and contents insurance policy may only cover damage caused by accidents, while damage arising from gradual wear and tear may not be covered. For instance, water damage caused by a pipe bursting may be considered accidental damage, whereas seepage from a damaged pipe may be seen as gradual damage. 

When you file an insurance claim for accidental damage, your insurer will likely send an adjuster to verify that the damage is indeed unintentional, and not the result of negligence either. As a homeowner, you’re responsible for your home’s maintenance to prevent leaks and seeps, as well as infestation by vermin. 

Ensuring that your insurance policy includes coverage against all likely events

When you shop for a home insurance policy, consider checking which insurers offer coverage for the events most likely to occur in your neighbourhood. This may include natural disasters like floods, bushfires, and storms as well as human incidents like theft, vandalism, and civil commotions. 

Living in an event-prone area can mean you’ll pay more for home insurance, which is why you need to make sure your insurance policy covers your home to the maximum extent possible. You can also go through the insurer’s Product Disclosure Statement (PDS) to learn more about the limits of the policy’s coverage for different events. 

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Product database updated 16 Jun, 2024

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