A first home owner’s guide to home insurance

If you’ve just bought your first house, you might well be wondering how home and contents insurance works and what it can cover you for.

You’ve been waiting for this day for a very long time, and now, after months of going to inspections and hours spent on the phone to real estate agents, it’s finally here: you’ve just been handed the keys to your first home! It’s an exhilarating time, but there are also a number of responsibilities that come with home ownership. A major one of these is making sure you have appropriate insurance to protect your new home, as well as your belongings inside.

So how exactly does home insurance work, and what’s covered? In this article, we’ll answer:

What is home insurance?

Generally speaking, there are two types of insurance available for your house – home insurance and contents insurance. Home insurance, otherwise known as building insurance, covers damage to the structure of the house itself, including permanent fixtures and fittings. Contents insurance, on the other hand, covers your belongings in the event of loss, theft or damage.

While these are two separate types of insurance and can be purchased individually, they are commonly bundled up and sold together as a single package under the names ‘home and contents insurance’ or ‘building and contents insurance’.

Bundling these two types of insurance up in this way rather than taking them out separately can have a number of benefits. It can be more convenient, meaning you have one policy to manage instead of two, and depending on the provider you choose, it may also be cheaper than taking out two individual insurance policies.

Is home insurance mandatory?

Home and contents insurance is typically not mandatory in Australia, although this does depend on the type of property you’re buying. For example, if you’re buying an apartment that is part of a strata title or body corporate scheme, the building itself and common areas will generally be covered by a single insurance policy that owners must pay for as part of their building levies.

In other cases, it may not be mandatory for you to take out home or contents insurance as a first home buyer, but it is likely that your conveyancer or solicitor will recommend it, as do many official government bodies around the country. For example, the Queensland Government warns that “not having home insurance is very risky”, so you should think carefully before deciding to proceed without it.

Where can first home buyers get home insurance?

Most major financial institutions in Australia offer home and contents insurance. There are many options on the market, so it is generally a good idea to compare home and contents insurance to find a deal that suits your particular needs. If you are a first home buyer, then it is quite possible that your real estate agent might be partnered with a home and contents insurer – they might recommend this insurer to you, or even offer you a sign-up deal as an incentive. If they do, be sure to do your research to understand whether the policy suits your coverage needs and offers a competitive price compared to others in the market.

What does home insurance cover?

Home insurance is designed to cover the cost of repairs to – or replacement of – your house if it is damaged or destroyed by an insured event. It can cover both the exterior and structure of the home, as well as the fittings and fixtures inside, such as built-in wardrobes, cabinetry and plumbing, depending on the type of policy you have.

In addition to the house itself, home insurance typically covers other structures such as garages and any other lockable buildings on your property. The full extent of what is covered will depend on your policy and insurer.

Generally speaking, there are two different types of home insurance you can purchase – total replacement cover or sum insured cover. The major difference between these two types is the amount that you are covered for in the event of damage to your home.

If you have a total replacement policy, then you are covered for all the costs necessary to rebuild it to its original standard, provided that the damage was done by an insured event, which will be explained in the product disclosure statement of your insurance policy.

If you have a sum insured policy, then this means that you are covered up to a set amount for repairs to your home. A sum insured policy tends to have lower premiums than a total replacement one, because the potential payout for a total replacement policy can be greater.

What is an insured event?

An insured event is an accidental, unexpected or unforeseen event that is covered by your home insurance. In general terms, insured events can include such things as storm, flood, fire, lightning and earthquake damage, and damage caused by other people’s malicious acts such as vandalism and thefts or attempted thefts that have been reported to police.

According to CommInsure, the three most common types of home insurance claims are for loss and damage caused by fire, storms, and sudden escape of liquid from such things as pools, water tanks, washing machines and dishwashers.

The exact definition of an insured event will vary depending on the insurer and the policy you choose, and it is very important to be wary of any exclusions and conditions there may be, to find out exactly what you’re covered for.

What exclusions does home insurance have?

When you take out home insurance, it is important to understand that not all possible events and circumstances will be covered, and there are likely to be certain exclusions. Although these will vary between insurers, there are some that are likely to be common to most insurance policies.

Most major insurers concur that if you fail to take reasonable steps to secure your home against break-ins, your claim might be refused. Damage caused by deliberate, malicious or unlawful acts by you, your family members, your guests or your tenants are also unlikely to be covered, although in the latter case you may be able to take out a specialised landlord insurance policy to cover you for this risk.

You are unlikely to be covered for damage done during renovations or faulty workmanship, or any pre-existing damage to the home. Loss and damage caused by vermin and household pets is also typically excluded under most home and contents insurance policies.

If flood damage is a priority for you, then it is advisable to ask your insurer exactly what your policy covers you for. Some policies will only cover you for flood damage as an optional extra, or for certain types of flood damage. If your new home is in a flood-prone area and you are concerned about what might and might not be covered, it is advisable to check with your insurer. You may also want to consider seeking professional financial advice if you need help choosing a policy.

If you wish to read about this topic in more detail, consider Canstar’s list of common home and contents insurance exclusions.

What is contents insurance?

Contents insurance is a kind of insurance that covers you in the event that your personal possessions are damaged, stolen or lost. Possessions can include anything from your furniture and carpets, to TVs and video game consoles, to a pair of sunglasses. Note that while many household items are automatically covered by contents insurance, you may need to list particularly expensive items such as jewellery and artworks.

There are varying levels of cover for contents insurance, but in general terms, contents insurance will cover your possessions if they are damaged, lost or destroyed by a defined event. Depending on the kind of policy you have, these events can include such things as burglary, fire, storms and vandalism.

Contents insurance generally covers possessions that you usually keep inside your home. If you want cover for portable valuables such as laptops or jewellery, this may be included as part of a contents insurance policy, or available for purchase as either an optional extra or under a standalone policy.

Compare Home and Contents Insurance with Canstar

If you’re comparing home and contents insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database for an Australian aged under 50, seeking cover in NSW or the ACT for a cost to replace building and contents of below $550,000. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical) and features links direct to the providers’ websites. Use Canstar’s home insurance comparison selector to view a wider range of policies. Canstar may earn a fee for referrals.

How does contents insurance work?

Generally speaking, there are two types of contents insurance policies available – those that cover the value of your belongings up to a certain dollar amount on a ‘sum insured’ basis, and those that offer new-for-old replacement of your belongings. The premiums for a new-for-old replacement policy tend to be higher, as the cost of replacing your items could be higher than if your insurer paid a set amount.

If you are considering taking out contents insurance, it is worth considering the value of your possessions, so you can decide on an appropriate amount of coverage to take out, and so you will be able to replace them if they are lost or damaged. This is especially important if you opt for a sum-insured contents insurance policy that covers the value of your belongings.

Your contents insurance premiums will be determined by the level of cover you choose, and may be influenced by other factors such as the amount that you choose to be insured for, any optional extras you choose to include, the location of your home and any specific risks that may be associated with this location, such as a heightened risk of flooding or bushfires.

What exclusions does contents insurance have?

Much like home insurance, contents insurance generally does not cover your possessions for damage caused by deliberate, malicious or unlawful acts by you, your family members, your guests or tenants. You are likewise not covered if your belongings are lawfully seized by police, or some other person with legal authority to do so, or for items that you illegally have in your possession.

In addition, contents insurance typically does not cover you for standard wear and tear on your belongings, nor for any losses resulting from a failure to take care of your contents properly, or possessions that you have merely lost, with no identifiable insured event to blame.

If you wish to read about this topic in more detail and what may be excluded, Canstar’s list of common home and contents insurance exclusions may assist you.

How does home insurance work for apartments or townhouses?

Generally speaking, if you buy an apartment, you will not need to take out separate home insurance, as the building will be covered by residential strata insurance that you will pay for as part of your body corporate fees or building levies. Most apartments and townhouses in Australia are covered in this way, so you will need to check with whatever entity manages your building to make sure this is the case for you.

It is worth noting that strata insurance may not cover you for certain fittings and fixtures inside your new apartment or townhouse, such as cupboards and light fittings, and it also generally doesn’t cover your own personal possessions inside the apartment. It is therefore important to find out if you are covered for these things, and if not, you may wish to seek out a contents insurance policy that can cover you for fittings and fixtures.

Cover image source: Southworks/Shutterstock.com

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