What is home insurance and what does it cover?

Finance Journalist · 22 September 2021
Whether you’re a homeowner or a renter, you might be interested in taking out home insurance to help protect your house and/or belongings. At this time, you may also be wondering whether your home insurance covers you for earthquake damage.

What is home insurance?

Home insurance is designed to cover you financially should something happen to your home and/or belongings. There are three main types of home insurance:

  • Building insurance: Covers the building itself and the fixtures.
  • Contents insurance: Covers your personal belongings.
  • Home and contents insurance: Covers both the building itself and fixtures as well as personal belongings.

What type of home insurance do I need?

What type of home insurance you need depends on your personal circumstances. However, here are some typical hypothetical scenarios:

Own a home and live in it:

If you own your home, you may want to take out a combined home and contents insurance policy. If you have a home loan, it may even be a condition of your loan that you have building insurance.

Own an investment home:

For landlords, you may want to take out a separate kind of home insurance called landlord insurance. This typically covers loss or damage to your investment property and furnishings. It may also cover tenant default (although some insurers are not currently offering this option to new customers due to COVID-19).

Living in a rented home:

If you are a renter, you would only need to consider contents insurance (sometimes also called renters insurance).

What type of policy cover do I need?

You may have the option of taking out a ‘sum-insured’ or a ‘total replacement’ home insurance policy.

Sum-insured cover

Sum-insured cover is where you provide an estimate of how much it would cost you to rebuild your home if it was totally destroyed.

Total replacement cover

Total replacement cover insures you for the total cost of repairing or rebuilding your home to the same standard. According to Moneysmart, not many insurers in Australia offer total replacement cover and it is typically more expensive.

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. Consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD), before making a purchase decision. Contact the product issuer directly for a copy of the PDS and TMD. Use Canstar’s home insurance comparison selector to view a wider range of policies. Canstar may earn a fee for referrals.

What does home insurance cover?

Home insurance covers your home and/or contents if it is damaged or destroyed due to an ‘insured event’. Cover will vary between insurers, but it generally covers events such as:

  • Fire
  • Theft
  • Storm
  • Earthquake
  • Explosion
  • Impact damage (such as from a car or a falling tree)
  • Escape of water (such as from a burst pipe)
  • Vandalism and riot

In addition to this, insurers may offer benefits such as legal liability cover (covers your liability to pay compensation if someone is injured or their property is damaged at your home) and temporary accommodation (if your property becomes unlivable because of an insured event).

Does home insurance cover earthquake damage?

Given the recent 5.9 magnitude earthquake in Victoria, which was the largest ever felt in the state, you may be wondering whether your home insurance covers you for earthquake damage. All of the policies on Canstar’s database include this kind of coverage as standard. If you’re wondering about what specifically you’re covered for and when you can claim, it is worth calling your insurer or checking the details of your policy, as some policies specify an allowable time of two to seven days for a claim following an earthquake. Some policies also have an ‘earthquake excess’ of around $250 payable in the event of a claim, according to Canstar research.

Home insurance exclusions

Home insurance policies will also come with certain exclusions. For example, many policies do not cover you if you intentionally cause damage or loss. Policies also typically don’t cover damage caused by vermin or insects or from wear and tear and gradual deterioration.

If you leave your home unoccupied for weeks at a time, the insurance for your home or contents could also be impacted. It is a wise idea to read the insurer’s product disclosure statement (PDS) carefully, so that you are familiar with what is excluded from cover.

Home insurance optional extras

You may also be able to add optional extras to your home insurance policy. For example, some insurers offer as optional extras cover for:

  • floods,
  • accidental damage,
  • motor burnout,
  • mobile and portable valuables, which covers certain listed valuables even when they are out of the house,
  • moving house,
  • visitors’ belongings,
  • temporary accommodation.

Keep in mind that adding extra cover can make your premiums more expensive.

How much does home insurance cost?

The cost of home insurance will depend on policy factors such as how much you choose to cover your home and/or contents for, how high the excess you choose is and whether you decide to add optional coverage. It can also depend on characteristics related to your home, such as where you live and whether you have any security features in place.

Canstar has calculated the average annual cost of home and contents insurance based on policies on our database. This is based on the sum insured values of $550,000 for building cover and $50,000 for contents cover.

Yearly home insurance costs

Sum insured values of $550,000 for building cover and $50,000 for contents cover

State Home
Home & Contents
NSW $1,117 $431 $1,424
North QLD* $3,860 $798 $4,357
QLD $1,299 $397 $1,566
VIC $935 $377 $1,204
SA $820 $336 $1,067
TAS $886 $313 $1,106
WA $1,007 $392 $1,289

Source: www.canstar.com.au. Based on quotes obtained for Canstar’s 2020 Home & Contents Insurance Star Rating (September 2020). Premiums based on sum insured values of $550,000 for building and $50,000 for contents. *North QLD is the portion of QLD north of Rockhampton.

If you’re looking to keep your costs down, you may be able to save on your premiums by buying your policy online or by bundling your home and contents insurance together. Some insurers are also offering discounts if you are at home more at the moment because of COVID-19.

How can I choose a home insurance policy?

When buying home insurance, it’s important to consider both price and features. Consider what type of coverage you want – for example, if you live in an area that is prone to flooding, you may want to choose a policy that offers flood cover as a standard or optional inclusion. It’s also important to carefully read the insurer’s product disclosure statement (PDS) so you have a good understanding of what you are and aren’t covered for.

A good place to start could be Canstar’s home insurance comparison tables, or reading about Canstar’s latest Home and Contents Insurance Star Ratings and Awards.

Cover image source: baranq/Shutterstock.com

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