Home Buying 101: Home and Contents Insurance

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Insurance is an important aspect of buying a home. In fact, you may need it before you can even make an offer.

From the types of insurance available to the amount of coverage you need, find out everything you need to know about home and contents insurance.

Protecting your assets against disasters and mishaps is part of becoming a responsible homeowner, but you’d be forgiven if you have no idea where to start. Buying home and contents insurance can be confusing, especially if you’ve never done it before. 

No need to worry! Read on for a comprehensive look at home and contents insurance, and how to choose the best policy for you. 

What type of insurance do you need?

First things first — it’s important to understand the different types of insurance available and what type you’ll need. 

Home insurance

Home insurance covers the actual property you will be living in if it is damaged or destroyed. If you’re buying your first home, you will need home insurance. 

If you buy a property with a strata title, your home insurance should be covered through the strata plan. Just make sure you review this policy thoroughly to ensure you’re happy with the level of coverage. You can choose to purchase additional coverage if you want to.  

If you’re an investor, landlord’s insurance is available that provides coverage appropriate for you and your tenants. 

If you’re renting, you don’t need home insurance. Your landlord should have appropriate insurance that will cover any damage to the property. 

Contents insurance

Contents insurance is exactly what it sounds like — coverage for all of the contents in your home. In other words, you can purchase insurance for all of your stuff. If you purchase contents insurance and anything happens to any of your belongings, you could be reimbursed for the cost of the items that were damaged or destroyed. 

This type of insurance is for everyone, whether you rent or own. Some providers will even cover those who live in share houses. 

If you’re thinking about buying a new home, you can choose to buy only home insurance or only contents insurance. You can also choose to combine them. Many insurance providers will offer discounted packages that cover both home and content insurance.

What’s covered by home and contents insurance?

Generally speaking, home and contents insurance will cover you if your home or contents are damaged or lost. However, the level of coverage will depend on your policy, so it is important to review your options carefully and fully understand the coverage you’re paying for. 

At a minimum, many policies will cover the damage to your home or contents caused by:

  • fire and explosion 
  • earthquakes
  • tsunamis 
  • theft or attempted theft
  • vandalism or intentional damage
  • fallen trees or burst pipes.

Some policies will also cover damage caused by flooding, storms or lightning. They may also cover accidental damage caused by you, your family, guests or neighbours. Keep in mind that this may be an additional extra that you will have to pay for. This is why you must pay close attention when shopping for the right policy.

How much will your insurance pay out?

If something should happen to your home or contents and you need to file a claim, the amount you will receive will depend on the type of policy you have:

Sum insured

When you purchase a sum insured policy, you will value your home and contents. This means you will assign the amount it will cost to replace your home and contents. When you file a valid claim, your insurance provider will pay out up to the amount listed on your insurance certificate. 

This is the most common type of policy available. 

Safety net

If you purchase a safety net policy, you will assign a value to your home and contents similar to a sum insured policy. When you file a valid claim, your provider will pay a specified percentage above the sum insured amount listed on your insurance certificate.

This is becoming increasingly popular, particularly as undervaluing home and contents are common. 

Total replacement

Total replacement policies are only available through home insurance and will only cover damage to your property. If you have a total replacement policy, your provider will cover the total cost to repair, replace or rebuild the damage to your property. 

This type of policy is also becoming more and more popular with modern homeowners.

When do you need to buy insurance?

If you’re thinking about buying a new home, you should review the insurance requirements in your state before you make any offers. Generally speaking, you will need to have home insurance in place before exchanging contracts.

If you are required to have insurance in place, your insurance provider can arrange for a cover note to be provided to your lender so they can release the funds for settlement. This covers you for the period between exchanging contracts and settlement. Your actual policy will not kick in until after you have settled on your new home. 

If you are making arrangements for contents insurance, you should make sure your policy kicks in before your moving date. This way, if any of your belongings are lost or damaged during your move, you will be covered.

How much insurance do you need?

The amount of insurance you need is up to you. When you decide to purchase home and contents insurance, you will provide your insurer with two sum insured amounts: the cost of replacing your home and the cost of replacing your contents. 

These are the sum insured amounts that will appear on your insurance certificate, and the amounts your provider will pay. You must be comfortable and confident with these numbers.

When valuing your home and contents, there are a few things to keep in mind: 

  • The cost of replacing your home is not the same as the cost of buying your home. Speak to a professional valuer or builder for guidance on understanding these costs. 
  • Think about the cost of repairs or replacements in ‘today’s’ money, not the amount you paid when you purchased the item. That is, if you had to go to the store today and buy a replacement, how much would it cost?
  • Under-insuring your assets is more common than you might think. You should speak to as many valuers and providers as you need to feel comfortable in the amount you’re insuring your home and contents for. 

How do I choose the right policy?

When researching your home and contents insurance options, it’s important to remember that providers are trying to cover the largest audience possible. It’s going to take some time and research to find the right policy for you. 

You should start by shopping around. There are a large number of providers to choose from. It’s worth looking into all of them to get a general idea of what each one can offer you. It’s worth noting that new customers will often get better premiums than returning customers, so make the most of it. Consider bundling all of your insurance into one provider, if it means getting the best deal.

Review and compare the optional extras. As mentioned, it’s important to understand what your preferred policy will cover and how that compares to other providers. Always read the fine print and ask as many questions as you need to feel comfortable with your policy. The most important outcome is that you’re getting the level of coverage you need for your home.

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