Home and Contents insurance is designed to protect you against the most common threats you may face. While it is impossible to lead a risk- free life, it aims to provide individuals with a peace of mind from any uncertainties. For many Australians, their home is one of the most valuable assets they have. So it makes sense to safeguard the physical structure and contents of your home from any unfortunate events.
Home insurance is designed to protect your home. When buying your home insurance, it is important to ensure that you purchase the right amount of cover that is sufficient in covering the total costs of rebuilding your home if it’s completely destroyed. Damages to your home outside of your control may be caused by natural disasters, bushfires, floods, storms etc. In the case of a fire destroying your home entirely, insurance payouts may be significant in rebuilding your life and that of your family.
Types of building insurance
There are 2 types of building insurance.
- Sum-insured cover – This type of cover is most common as it allows you to specify an amount “sum insured” for the cost of rebuilding or repairing your home. This is good option if you know how much it will cost to rebuild your home.
- Total replacement cover – If you don’t have the expertise to calculate the exact amount of cover required to rebuild your home, the total replacement cover is an option for you as it reduces any shortfall between the amount insured and the total cost of rebuilding your home to the state it was prior to an event occurring. This option can minimise the risk of being
Calculating the cost of your home
Your home is one of the most valuable assets you may own and it can be difficult for you to determine what is the most appropriate level of cover you need. There are 2 main methods in calculating how much cover your home needs.
- Cost per square metre. This is a basic method and is based on the size of the house and the materials
- Fundamental estimation. This is a much more comprehensive method that takes into consideration a number of factors, including local wage rates, material costs, the quality of finish used, the nature of the building site and
Many insurers also offer online calculators. It requires you to answer a set of questions, for example, is it built on a flat or sloping land, what type of roof you have, what are the walls of your home made of etc. It will then provide you with an estimate of the cost of rebuilding your home from scratch.
There are many types of home building insurance policies available to suit a wide range of living circumstances. It is important to consider what specific risks you need to insure your home from. Depending on the location of the property, you may be more susceptible to fires, or if you live near a river, you may be more exposed to flooding.
Above is a list of events/covers that highlight what can be covered within your policy. Descriptions will vary between insurance companies.
What is coveredUnlike home insurance, contents insurance provides cover for the damage and loss of your personal belongings in the home. This cover is not only for homeowners but also those that are renting. If the unexpected should happen, landlords insurance will only cover the property they own and not your possessions.
There are two main types of contents insurance:
- “New for Old” – This covers you for the cost of replacing your belongings (damaged or lost) with new This option tends to charge a higher premium as the cost to replace the item is of higher value.
- Replacement Value – This only covers the market value of the It is important to review your policy regularly as the value of most of your possessions will depreciate over time.
A standard contents insurance policy will cover your possessions if they were damaged or lost in a specified event such as theft, burglary and storm. It also covers for accidental damage/breakage e.g. the TV accidentally dropped from your wall mount, stains on your carpet or damages to your floorboards from moving is also included. Some policies also have the option of covering you for any items taken away from the home e.g. Mobile phone, jewellery, laptops, cameras etc. Insurers will normally set a limit for unspecified items. There are some items that may not be covered under the standard policy. Valuable items such as, your jewellery, collectibles (painting, stamps, books) will need a separate valuation and listed separately under your policy.
Before taking out the policy, it is best to identify what other expenses and services are provided under the policy. Many Australians always assume that an insurance company rebuilding your new home will automatically include removal costs. Please refer to the Product Disclosure Statement to ensure what costs are covered and whether limits apply.
Protection Against Inflation
Upon your policy renewal, insurers can provide you with the option of automatically increasing your sum insured to reflect the current costs of rebuilding your home. Your premium will be adjusted accordingly.
This option provides you with the peace of mind and safeguard you against any shortfall cost you may incur. If the sum insured is insufficient to meet the cost of replacing or rebuilding your home, insurers can pay up to a certain amount e.g. an additional 20% of the sum insured, so that your building is complete.
Many policyholders fall into the trap that if an insurer will cover the replacement of the home building, they will also cover other cost associated with removing the debris and other damaged items from the home. With this option, the insurers will cover up to a certain amount e.g. 15% of the sum insured for any debris or rubbish removal, demolition, and building and professional fees charged (e.g. engineer, surveyor, architect).
Cover for an Unoccupied Home
Your home may be covered if it is unoccupied, however, additional excess will apply to any claim made during this time if the home has been unoccupied for more than a certain period of time.
Storage of Personal Items
The rebuilding of a new home can take time before you can move in. Another option to consider is having your undamaged personal contents stored while your home is being rebuilt. Insurers will cover up to a certain amount e.g. 10% of your home contents sum insured in addition to your total sum insured.
Being under insured
Being under-insured is very common among many Australians. Statistics have shown that more than 30% of Australians do not insure their home or personal belongings. No one believes that anything will happen to them. If the unexpected happened, do you have enough cover to replace all your possessions?
Ruth, a retired nurse had made the decision to sell her family home and downsize. 3 weeks after the home was sold, she received a call advising her that her home had caught fire. She had spent her entire life in this home and she could not believe this happened to her. The home assessors believed that it was due to an electrical fault that started in the kitchen. Ruth was underinsured in both her home and contents insurance.
“The Insurance Council of Australia estimates that more than 81% of Australian homeowners are underinsured. Households fail to correctly assess the value of their home and contents”. Insuring the most valuable asset for less makes as much sense as insuring a Ferrari at the insured amount of a Toyota Camry.
By having your home underinsured in the event of a natural disaster could leave you having to pay out a significant amount compared to the cost of increasing the level of cover on your home insurance policy. Australia experienced its most horrific hailstorm in Sydney 1999, where 500,000 tonnes of hailstones caused damages totalling $2.3 billion. Sadly, only $1.7 billion of this damage was insured.
How premiums are calculated
The premium for contents insurance is based on the likelihood of a claim being made on your policy in the future. Your insurer may take into account many different factors when calculating your premium.
- The age of the policy owner
- The insured amount of your home and contents
- The risk profile of the location, including crime rates and the risk of natural disasters such as floods, bush fires and cyclones.
- The excess amount you choose
Comprehensive insurance offers peace of mind for policyholders. Your insurance premiums may be higher in the short term, however it wont leave you feeling emotionally and financially stressed when you need to cover the excess on a claim such as in the event of a natural disaster.
Important things to note
- 24/7 Emergency Claims Assistance– Events can happen unexpectedly and knowing that your insurer is available at anytime will provide you with a peace of mind.
- Flexible Excess Payments – Insurance premiums can be very Some insurers will offer you flexible excess options that can reduce your upfront costs.
- Lifetime Repair Guarantee – In the event that you have made a claim and repairs have been completed on your home, there are insurers that offer a lifetime guarantee on authorised building
One of the top causes of home and contents insurance claims in Australia is due to theft. In Australia, households experienced at least one burglary (2.5%) from 2016 to 2017. Only 75% reported the incident to the police. 49% of those had property damaged and 74% of the households had property stolen. 1 in 10 households that were broken into were confronted by the offender. The table below illustrates the percentage of households that had been broken into by state in 2017 . Northern Territory had the highest percentage of break-ins versus the population (5%) of households, followed by Western Australia (4.3%). South Australia had the lowest percentage of break-ins versus the population at 1.9%.
The claim process
In 2016, Australian insurance companies approved 3,361,016 claims from policyholders and paid out an average of $124.6 million in claims. Approximately 5% of policyholders will make a claim in the year and only 3 per cent of claims each year are denied.
In the event you are involved in an unexpected accident, disaster or other loss that is covered by your insurance policy, you will need to lodge a claim as follows:
- Contact the insurance company as soon as you can. This will ensure the insurer is made aware and can therefore start assessing your
- The insurers may request certain documents and evidence to prove what has been lost or damaged. E.g. Photographs of the damage, a police report, receipts, valuation
- Home Assessors may be required to attend the property to assess the
- Once all the required documents have been received, your case manager will review the claim before a decision is made. If your claim is accepted, the insurer will fulfil the terms of your policy through repairing or replacing damages to the property or items through a payment. If your claim is denied, the insurance company must provide a written report of the decision to deny the claim and information about its complaints handling
Home and Contents insurance is a way of managing risks. With any luck, you may never need to use this, however if you happen to be affected by an unexpected event, be certain that you are adequately insured as the impact it could have on your finances, your lifestyle and potentially your future can be devastating.