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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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.

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.  

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.

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. 

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.

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.