Helpful tips for choosing a home insurance policy

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 need to compare policies from different providers to understand what is included and what isn’t, and to what extent. Insurers use terms like coverage, exclusions, and limits, which you 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 the percentage of each claim that you agree to pay. 

You may 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. Irrespective of the cost, you should ensure that the policy you buy covers the full cost of your valuables from damage caused by most kinds of incidents. 

Deciding between Total Replacement Cost and Insured Sum Coverage

There are two main types of 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. Even 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. 

You may need to compare several home and contents insurance policies to see which ones offer adequate coverage for various items against different damaging incidents. 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 in order to prevent leaks and seeps as well as infestation by vermin. 

Ensuring that your insurance policy includes coverage against all likely incidents

When you shop for a home insurance policy, consider checking which insurers offer coverage for the incidents 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 incident-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 incidents. 

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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. 

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.

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.

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.  

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.

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.

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.