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What does home and contents insurance cover?

No one wants to be in a situation where they’re forced to make a claim on their insurance. But when life takes an unexpected turn, they may start wondering how their insurance can help.

While it’s possible to bundle your home and contents insurance together, many don’t realise that the two are separate policies. To know the type and level of financial protection you have, it’s important to have at least a general understanding of what the two types of insurance cover.

What does home insurance cover?

Home insurance is generally the most basic form of insurance, so most home owners have this. Under the law, you’re not required to take out insurance, but most mortgage lenders will require home owners to get home insurance before the property is settled.

Typically, home insurance covers financial loss in the event of damage to the main residential property, as well as other permanent structures, fixtures or fittings on the site. This might include garden sheds, fences, in-ground swimming pools, garages, built-in wardrobes and even light fixtures.

Home insurance may cover your home against certain events which can cause damage, including fire, floods, theft or vandalism. In many cases, these are considered optional cover. Being covered for defined events could increase the cost of home insurance.

You may also opt to pay extra for accidental damage cover. This covers your property for damage caused by one-off unintentional incidents. This generally excludes wear and tear over time. Consider checking your product disclosure statement (PDS) for specific exclusions and conditions.

It’s important to take good care of your home and maintain it well. If your insurance provider determines that damage to your home was because you didn’t do a good job looking after your property, your insurer may refuse to pay for the damage.

If you’re renting your home, there’s no need to worry about home insurance as it’s generally for home owners only. However, contents insurance is an option worth considering for renters.

Keep in mind home insurance doesn’t cover strata-titled apartments or units. The complex’s body corporate would take care of building insurance in most cases.

What does contents insurance cover?

Generally speaking, contents insurance covers your personal possessions inside your home. These could include items such as furniture, whitegoods, appliances, electronics and jewellery. 

This type of insurance doesn’t cover anything that’s permanently fixed to the site or building; those usually come under home insurance. Contents insurance also generally doesn’t cover items that belong to any people visiting your home which are accidentally lost or damaged on your property

The extent of your cover depends on the level of insurance you have. The basic level of contents insurance, which is often also the most affordable option, only covers you in limited events listed in your PDS. Examples of these events may include burglary, storms or fire.

As with home insurance, you could go for optional accidental damage cover to provide a financial safety net for your home’s contents if an accident happens. Remember that wear and tear to any items over time aren’t included in accidental damage cover.

If your belongings are lost or damaged inside the home, you may be able to make a claim to your insurer to cover the costs of getting it fixed or replaced. If approved, the insurance company may either:

  • directly repair or replace the covered contents or
  • pay you the repair or replacement costs.

Both owner-occupiers and renters can take out contents insurance to provide financial protection against their possessions, regardless of what kind of property they live in. For renters, it’s important to note that your home’s contents aren’t covered by any insurance your landlord has.

For personal belongings you take outside the home often, you could also take out extra cover to insure it against damage, theft or loss. This cover is optional and is known as personal effects insurance. Some items that may be covered by personal effects insurance include your handbag, jewellery, camera or smart phone.

Exclusions and limits

Just because you’ve paid for insurance, it doesn’t mean you’re covered for everything.

Generally speaking, only damages or losses caused by an insured event are covered. 

Let’s say your home and contents insurance covers storms and your house and many of its contents are damaged by rainwater. In this case, you may be eligible for a claim.

But if you don’t have accidental damage cover under your contents policy and your dog destroys your new laptop, the insurer won’t pay you for a repair or replacement.

Even if you’re insured for a certain event, the exclusions in your policy will help determine whether the insurer approves your claim.

In most cases, there are limits on the amount an insurance provider will pay to repair or replace your property or its contents.

For example, imagine your insurer’s maximum claim limit on insured jewellery is $1,000 per item. If your diamond ring is worth $3,000 and it gets stolen during a burglary, the insurer may only pay $1,000 to help replace it, given that your claim is approved.

If you’d like to insure the diamond ring for $3,000, you could consider taking out extra cover for the valuable by listing it within your policy. It’s likely that you’ll be required to specify its value and description when doing this. Bumping up your cover amount may increase the cost of your policy.

This is why the cheapest cover is not necessarily the best insurance. Aside from a policy’s premiums, it’s important to compare the insured events, exclusions, limits and excess of multiple insurers before you take out any cover.

What your insurance covers depends on your insurer and the policy you have, so you should always read over your PDS or reach out to your insurer if you’re unsure of what your policy covers.

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Fact Checked -

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

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