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What you should know about the cost of house insurance

Alex Ritchie avatar
Alex Ritchie
- 5 min read
What you should know about the cost of house insurance

Key highlights

  • Understand the factors that determine the cost of home insurance, such as the type of cover and optional extras.
  • Consider the excess amount and payment frequency to find a balance between affordability and coverage.
  • Take into account your location and potential risks to accurately estimate the cost of home insurance and make informed decisions.
  • Your home insurance policy should fit your budget, but also offer the best possible coverage. Generally, the more cover your policy offers, the more the premiums may cost. It is important to understand what you're paying for when comparing home and contents insurance options.

    How do you estimate the cost of home insurance?

    There are several factors that determine how much your home and/or contents insurance premium may be, such as:

    Type of cover

    There are two main types of home insurance coverage: total replacement cover and sum-insured cover.

    • Total replacement cover is where the insurer agrees to cover the actual cost of replacing, rebuilding or renovating your home after an insured event, such as damage from a storm.
    • Sum-insured cover is where the insurer agrees to cover the cost of repairing, renovating or rebuilding your home up to a predetermined limit that is set when you apply for the policy.

    Total replacement cover will generally cost you more, though you may get to enjoy more peace of mind. Sum-insured cover can have cheaper premiums, though there’s a risk that you could accidentally end up underinsured.

    It’s important to carefully consider your sum-insured amount. If it’s too high, you’ll pay higher premiums than necessary. If it’s too low, you may be underinsured when you need help the most.

    To help you accurately estimate the value of your home and/or its contents, online calculators are available, often provided by insurance companies. You might also want to independently assess the value of your home and possessions before setting your sum-insured amount.

    Optional extras

    You may be able to add additional coverage to your policy for specific high-value items, such as expensive electronics, jewellery or artworks. You could also choose to take out personal effects coverage or portable contents cover so some of your home’s contents (such as laptops and mobile phones) may still be covered even when you’re not at home.

    Some insurers may also offer other extra benefits, such as covering temporary relocation or other emergency expenses following a damaging incident. 

    But all this extra cover may mean paying extra in your premiums. Consider which insurance cover, features and benefits you may need and which ones you may be happy to live without before settling on an insurance quote.

    Excess amount

    Your excess is the amount of money you agree to pay out of your own pocket when making an insurance claim. The insurer will cover costs in excess of this amount. For example, if your home insurance policy has a $5000 excess, and repairing your house will cost $25,000, you’ll pay $5000 and the insurance company will pay the remaining $20,000. 

    Generally, the higher your excess, the lower your insurance premiums, and vice versa. You’ll need to decide how much you’ll be willing to pay when making a claim compared to when applying for or renewing an insurance policy.  

    Payment frequency

    Most insurers give you a choice of whether to pay for your home insurance premium monthly, quarterly or yearly. Generally, an annual payment is typically cheaper than making ongoing quarterly or monthly payments.

    That said, making smaller, more regular payments may be less stressful on your wallet than making one lump sum payment. If you cannot afford to pay 12 months of premiums in one lump sum, regular payments may work out to be more manageable for you. 

    Your location

    Home insurance costs vary across each region of each state and territory. Some insurance providers may charge different premiums depending on where you live, right down to the suburb. For example, if you live in an area with a higher crime rate, or higher likelihood of an event like flooding, you may be charged a higher premium compared with friends living in other areas.

    For example, a 2019 Australian Competition and Consumer Commission report found that the average premium figures for home and contents insurance in Port Hedland in the north of Western Australia were $5256 – almost four times more expensive than the average of $1400 for areas outside northern Australia at the time.

    Calculating how much home insurance may cost you

    To work out how much home insurance may cost you each year, consider using a home insurance calculator before getting a quote from a home insurance specialist or broker. 

    The cost of your home insurance premiums may depend upon how much cover you are comfortable with, which extra features and benefits you want with your policy, as well as the potential risks your household may face in the future.

    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. Comparing home insurance options can give you a better idea of where to spend your money and how much it may cost you over the long term. 

    Compare home insurance

    Product database updated 20 May, 2024

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

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    product data updated on

    Product data updated on 20 May 2024