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What is a home insurance premium?

Mark Bristow avatar
Mark Bristow
- 5 min read
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, though opting for insured sum coverage could leave you at risk of being underinsured.

What affects your home insurance premium?

Calculating the premium for home insurance involves considering a variety of factors that can impact the cost of coverage. These may include, but aren’t necessarily limited to:

  • The type of property: Common property types in Australia include detached houses, apartments, townhouses, and units. The construction and layout of these structures can affect the risk profile and thus the premium.
  • Age of the property: The age of your home can play a role in calculating the premium. Older properties may be more susceptible to certain risks, such as wear and tear or outdated electrical systems, which can influence the cost of coverage.
  • Construction materials and architectural style: The materials used in the construction of your home and its architectural style are essential factors. For instance, homes built with fire-resistant materials may have lower premiums. Additionally, architectural features like a thatched roof may increase the risk of fire and, therefore, the premium.
  • Property built on a slope: If your property is situated on a slope, it may be more prone to erosion, landslides, or flooding, depending on the location. These factors can affect the cost of coverage, especially if you require additional coverage for these specific risks.
  • Selected coverage amount: The amount of coverage you choose for your home insurance policy will directly impact the premium. The higher the coverage limit, the more you'll pay in premiums. It's important to strike a balance between adequate coverage and affordability.
  • How the home is being used: Whether your property is owner-occupied or rented to tenants can affect your premium. Landlords may need specialised landlord insurance, which typically covers rental property-related risks like loss of rent and tenant damage.
  • Security features: Homes with security features such as alarms, security cameras, deadbolt locks, and smoke detectors are generally considered lower risk. Insurers may offer discounts on premiums for homes with these features in place.
  • Claims history: If you have a history of frequent claims or large payouts, insurers may consider you a higher risk and charge a higher premium. A claims-free history often can result in lower premiums.
  • Location: The location of your property is crucial in Australia. Properties in regions prone to natural disasters like bushfires, floods, cyclones, or hail storms may have higher premiums. Additionally, crime rates in your area can also impact the cost of coverage as insurers are more likely to receive a higher number of claims in such neighbourhoods.
  • Local building codes and regulations: If your property meets or exceeds certain regulatory and legal standards, it may be viewed as lower risk.

How can you lower your home insurance premiums?

Your home insurance excess can affect the cost of your premium. Your excess 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.

If you also want to buy insurance for your belongings, a combined home and contents insurance policy may have a lower premium than paying multiple premiums on separate policies for your home and your belongings. Applying for additional policies from the same insurer (e.g. car insurance) or even other financial products the provider may offer (e.g. bank accounts, credit cards) may allow you to benefit from a bundle discount, though you should check that these financial products also suit your household’s financial needs.

Accurately estimating the value of your contents can also help to reduce the size of your premiums. When you overestimate the value of your insured items, you can end up paying a higher premium than necessary. However, in the event of a claim, you receive the same outcome as if you had accurately assessed the value. Conversely, if you underestimate the value of your insured items, you may not receive enough compensation to replace them adequately when a claim is made.

Having home security can prevent unwanted intrusions and theft. Additionally, investing in home security measures can lead to reduced insurance premiums. Insurers often view well-secured homes as having lower risks of break-ins, which, in turn, decreases the likelihood of insurance claims. By installing security systems like alarms, you not only enhance the safety of your home and provide peace of mind for your family but also have the potential to enjoy cost savings through lowered insurance premiums.

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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.