Imagine your home gets flooded. Your carpets are soaked, your furniture’s destroyed, and you’re likely looking at mould and structural damage further down the track.
Without insurance, you may find yourself in a pretty dire financial situation. You’d be hugely out of pocket (and possibly even in significant debt) if you’re forced to pay for all of the damage. But with it, you may very well find that the majority – if not all – of the damage is covered.
Your home is likely the most valuable thing you own, which is why insurance is so crucial. Similar to life insurance, It gives you and your family peace of mind and a financial safety net if the worst was to happen.
If you’ve just bought your first home, here’s what you should know about insuring it.
What is home insurance?
Home insurance isn’t an insurance product in itself but refers to different types of insurance that cover the building, its contents – such as furniture and your belongings – or both.
Home insurance generally covers some natural disasters like floods and bushfires, as well as events such as rain or storm damage, explosions (from a gas leak, for example), vandalism and malicious damage, and theft.
It provides you with a reimbursement if you need to repair anything that gets damaged or broken, or even total replacement cover for anything that’s stolen or irreparable.
Some insurance policies also protect against accidental damage, but you’ll often have to pay more to include this. You might also be able to access alternative accommodation while you’re home is being repaired.
What types of insurance should first-home buyers consider?
Let’s break down the types of insurance you can purchase for your first home and what they typically include.
Keep in mind that the below is just a general insurance guide. If you’re wondering exactly which insured events your home insurance covers, as well as any exclusions, have a close look at the relevant product disclosure statement (PDS) provided by your insurance company.
As the name suggests, building insurance covers the building itself. It covers anything permanently affixed to your property, including the home’s structure, other buildings like a garage, granny flat or shed, and a pool if you have one.
Your home building insurance also includes built-in fixtures such as the roof, ceiling, walls, windows, doors, cupboards and floors.
Contents insurance covers items inside your home, including furniture, personal belongings such as clothing, jewellery and tech products, appliances and white goods. It also protects parts of your home like carpets, rugs, curtains and internal blinds – basically, anything that isn’t a permanent fixture.
Many insurance providers offer a product known as home & contents insurance, a combined home insurance policy that covers both the building and the belongings inside it. In some cases, insurers offer a discount for a combined policy.
If you’re buying an apartment or townhouse, your insurance needs differ slightly. Building insurance typically relates to individual properties that aren’t part of strata (meaning freestanding houses), whereas apartments and townhouses usually fall under strata insurance.
Strata insurance covers the buildings within the complex and common areas such as pools, parking, stairwells and foyers. You don’t have to take out strata insurance yourself; it should be included in your strata fees.
Note that strata insurance doesn’t include your home’s contents nor any structural changes within your home, like a renovation – you’ll generally need a separate home and contents insurance policy for those.
If your first real estate purchase is an investment property, you could consider taking out landlord insurance. This provides cover against any damage or loss incurred at the property, as well as any contents you allow your renters to use.
Your landlord insurance premiums for investment properties are tax-deductible, so can contribute to negative gearing.
Do you have to get home insurance?
Home insurance isn’t mandated by law. However, most home loan lenders require homeowners to have building insurance before settlement (when your new home is officially transferred from the seller to you). We’ll explore this in more detail further down.
How much home insurance do you need?
There’s no straight answer to this – it depends on how much you’re willing to pay.
But, you want to ensure your home is adequately protected, especially if you live in a flood or bushfire-prone area. Underinsurance is pretty standard, and it’s mostly because people underestimate the value of replacing their home and the contents within it.
If you’re taking out building insurance, you need to think carefully about the cost of rebuilding your home, including any upgrades or additions you make to your property. The total rebuild cost is known as the ‘sum insured’.
Remember that the sum insured isn’t the same amount as what you paid for your home – that figure takes into account the value of the land, too, which often makes up a bulk of the purchase price. The insured amount should also include the current cost of building materials and labour.
As far as contents insurance goes, you’ll have to work out the cost of replacing your belongings. Include everything you own, no matter how small – think things like cutlery, books and tools.
Many insurers offer online calculators to help you figure out your estimated replacement costs.
How much does home insurance cost?
This all depends on the insurer you choose, the level of cover you go for, the excess and where you live.
Put simply, the more you pay, the more coverage you’ll receive. You may also pay more if you have a lower excess (the amount you’ll need to contribute if you make a claim).
However, there are several ways to save money on insurance. You could opt to pay a higher excess to reduce your insurance premiums (the amount you pay for coverage), plus many insurers offer ‘no-claim’ discounts if you hold a policy for a certain amount of time without making an insurance claim.
When should you organise home insurance?
For the most part, you’re best organising building insurance well before settlement. In fact, most Australian lenders require you to have insurance when the settlement date rolls around or even earlier.
In Australia, the exact timing varies from state to state. In Victoria and NSW, you become responsible for damage on the settlement date.
In SA, the ACT and Tasmania, you must have insurance on the day you and the seller sign the contract. But in QLD, your responsibility for the building doesn’t start until 5 p.m. the next business day after you sign the contracts.
In the NT and WA, responsibility is transferred to you when you gain possession of the property or pay the total amount for it – whichever happens first.
If you’re buying a strata property, you’ll need proof of insurance (known as a Certificate of Currency) from your body corporate.