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What you should know about the cost of house insurance

What you should know about the cost of house insurance

Your home insurance policy should fit your budget but also offer optimal coverage. It is important to understand what you're paying for while comparing home and contents insurance options.

Owning a home may be a universal dream in Australia, but it's one that comes with a great deal of responsibility. Maintenance and upkeep are continuous responsibilities, and natural disasters remain a lifelong concern. 

For many, home insurance is the recommended approach to reducing risks associated with homeownership, making it vital to purchase the right home insurance that not only fits your budget but offers optimal coverage. Of course, costs can vary wildly, making it important to understand what you're paying for when buying home and contents insurance, and comparing insurance options.

How do you estimate the cost of home insurance?

A home isn't just the building, but also the people living in it and their possessions. This means home insurance isn't just covering the place you live but also the things inside. Also called a "home and contents insurance policy", it covers the cost of repairing or replacing the valuables in your house alongside the house itself. 

For both home insurance and the combined home and contents insurance, online calculators are available, often provided by insurance companies. For peace of mind, you might want to independently assess the value of your home and possessions before arriving at what you consider is an accurate estimate of the total value.

However, when valuing your home and possessions, you should take care not to underinsure your assets, potentially leaving you with a policy that only covers a portion of the value. While the total value certainly decides the cost of your insurance policy, underinsured property or belongings will almost certainly lead to you shelling out more money from your own pocket than you anticipated if the worst does happen. Your insurance provider may also look at discounting the value in the event they need to make a claim settlement.

For instance, if you need to repair even a part of your home, an underinsured policy may force you to spend more on replacement parts and fixed than estimated. 

Like all forms of insurance, the excess is a critical part of the home insurance estimation. Excess is the sum you end up paying yourself upon a successful claim and helps adjust the cost of the insurance coverage. For example,  if you're repairing your house and have to spend $25,000, paying an excess of $5,000 will see the insurance company pay the remainder -- $20,000 --  allowing you to pay for repairs quickly. You may also choose to pay a higher insurance premium overall and pay a lower excess amount from your pocket.

Apart from these calculations, the cost of home insurance depends on whether you choose additional coverage for specific high-value items, or if you add personal effects coverage. There may also be a cost included towards covering temporary relocation or other emergency expenses following a damaging incident. Since all of these costs vary across geographies, if you choose to use an insurance calculator for estimating your premium, you should preferably use one which accounts for the most detail regarding the location of your home. It should consider your precise street address and not just the postcode, the distance from the beach or bush, etc. 

How much will home insurance cost you annually?

Home insurance costs vary from city to city and state to state. The average cost of home insurance, is lowest in South Australia and the highest in New South Wales, though there can be regional variations even within each state. For example, 10 per cent of the residents in Townsville pay over $4,500 for home and contents insurance each year, whereas the average for Townsville overall is approximately $3,100. This, in turn, is far higher than the Australian average cost of $1,400.

Home insurance providers may offer a lower premium cost depending on where you live, going right down to the suburb. If you live in an area with a higher crime rate, you may be charged a higher premium compared with friends living in one with a lower rate. 

To work out how much home insurance will cost you each year consider using a home insurance calculator and estimating your costs before contacting a home insurance specialist or broker. What you choose to pay can be a question of the level of complexity you are comfortable with and weighing whether contents insurance can lower the cost of home insurance.

Unfortunately, no two home insurance policies are going to be the same, and only you will be able to work out which is best for you. However, comparing home insurance options can give you a firm idea of where to spend your money and how much it will cost you over the long term. 

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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