Written by Your home is likely to be the most valuable asset you’ll ever own, so it’s important to keep it safe from any potential damage. That’s where a home insurance policy comes in handy. When it comes to picking the best policy for your needs, though, it's worth comparing your options, which you can do with Savvy.
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How does home insurance work?
Home insurance functions in a similar way to many other types of insurance: it covers your property for various forms of damage it may sustain. In its most basic form, home insurance will solely provide coverage in this area, with usual examples of damage covered in a home insurance policy including:
- Damage to the property caused by theft
- Intentional damage caused by a third party
- Extreme weather damage such as fire, flooding, lightning and earthquake
You can also take out a contents insurance policy, which covers you financially in the event that one or more of your items are stolen, damaged or destroyed. Like any other insurance policy, the types of damage and the circumstances in which they occurred that are covered will differ between insurers, but most will either offer an equivalent value to replace the possession or exchange the old one for a new one.
However, homeowners can elect to combine their home insurance and contents insurance policies into one home and contents insurance policy. A home and contents insurance policy is typically more affordable when it comes to the cost of premiums, as you’re sticking with the one provider rather than two. In this case, insurers will usually provide a discount for taking out a combined policy with them rather than shop around for the best of both individually. As a result, your insurance payments become more simplified, as it’s easier to pay one bill for everything at once rather than two separate payments on different pay cycles.
What types of home insurance are available to me?
Depending on your personal and financial situation, you may be looking for one of several different types of home insurance policy. Consider some of the following if you don’t necessarily fit the mould of a standard home and contents insurance customer.
Building insurance
This is another name for home insurance, so it provides you with cover to your home for damage caused by extreme weather or intentional third-party damage. In some cases, internal fixtures like plumbing and built-in cabinets can also be covered by a building insurance policy, as well coverage for any potential legal liability in relation to someone sustaining an injury whilst on your property. This means that it can help fund the costs incurred should your matter end up in court.
In terms of what type of person would look for a building insurance policy, these are more suitable for homeowners who have a freestanding property, rather than a unit, apartment or attached townhouse.
Contents insurance
As mentioned above, contents insurance focuses its attention on providing coverage for potential damage to your belongings. The items that you’re able to insure don’t even necessarily have to be incredibly valuable; while some of the most common insured possessions include televisions, computers, furniture and electrical appliances, it can cover items as simple as your kids’ toys or sporting equipment.
There are two main types of contents insurance that you’ll encounter in the comparison process: new for old and replacement value cover. New for old will cover you for the replacement of a lost or damaged item with a new or equivalent one, regardless of the condition of the original. Replacement value, though, will cover you only for the value of the original at the time it was lost or damaged. New for old provides more extensive coverage in this regard, but the trade-off is that replacement value cover is generally cheaper.
Landlord insurance
Obviously, this kind of insurance is designed for customers who own an investment property and are renting it out to another person or people. There is an inherent risk associated with entrusting your property to a third party, as you’re not really in control of what they can and can’t do while you’re not there. In terms of its coverage, it’ll typically cover the same sorts of areas relating to property damage, including permanent fixtures. Some policies will also offer cover for lost rental income if your tenants become unable to pay or if your property becomes unliveable for a period.
Renters insurance
Just because you don’t own the house doesn’t mean you don’t have to think about insurance. Renters are still at as much risk of having their personal belongings damaged, destroyed or stolen, so a renters’ contents insurance policy wouldn’t go astray. Depending on the severity of the damage sustained and the nature of the event that caused them, as well as the policy, renters could also be eligible for coverage for the cost of temporary accommodation or emergency contents storage.
Flood, fire or storm damage insurance
Insurance for extreme weather events is usually covered by home or building insurance, but different policies may omit certain types of damage from their coverage. As a result, these can often be purchased as optional extras on your policy. Be careful to read the fine print with these conditions, as insurers will often define what constitutes flood, fire or storm damage differently, such as covering damage caused by water stemming from a lake or creek but not the ocean, for example. If you’re living in an area that’s readily affected by any of these types of events, you should ensure that you’ll be covered. Your premiums will probably go up if you’re in this situation, though.
How to compare home and contents insurance policies
The optional extras you should look for on your home and contents insurance policy
While not typically included in the standard home and contents insurance policies offered by insurers, covering accidental damage in your home is definitely worth considering as an optional extra. In most cases, this would cover unintentional breakage of glass items and televisions, damage to walls or a major spillage that stains your carpet. Insurers will have exclusions and different definitions of accidental, so keep your eye on the fine print.
This optional extra, also known as fusion damage, covers your major appliances or equipment if their motor burns out or stops functioning properly. This can apply to fridges, washing machines, dishwashers and other essential household appliances. Motor burnout cover will also typically insure damage to these appliances due to the same causes as are covered in standard home insurance policies: some extreme weather, theft or vandalism are all covered for the most part.
Contents insurance covers damage to your valuables in your home, but it won’t always provide the same protection once you remove them from your premises. Losing a valuable item is far easier once out of your house, so if you’re particularly forgetful or clumsy, this optional extra might be the way to go for you.
If your home is damaged to an extent where it no longer becomes safe or reasonable for you to stay there, some insurers will offer optional cover for the cost of temporary accommodation under certain circumstances. This can obviously be very useful if you suddenly and unexpectedly find yourself without a place to stay due to unforeseen circumstances rendering your home temporarily unliveable.
Some insurers include cover for vet bills as an optional extra on their home and contents insurance. This may only apply to your pet if the cause of its injury is covered, but you may be able to find some insurers who include illness in their cover as well.
Frequently asked home insurance questions
Home insurance has to work differently if you’re living in strata-titled housing, as your property ownership situation is more complicated than free-standing properties. In this case, home insurance could be included as an element of strata levies, rather than a policy that you seek out on your own. If you’re unsure, check over your strata policy or speak with your strata manager.
One simple way to do this is by increasing your excess. This is the amount you’ll pay out of pocket when making a claim. By increasing your excess, you’re decreasing the amount your insurer stands to reimburse you, thus in turn decreasing the amount they’ll need from you monthly or annually to cover it. Other methods for reducing your premiums include paying annually, buy into a nicer area and increase your home’s overall security.
Yes – guests’ contents insurance will usually come as an optional extra for your home and contents insurance policy. Unlike your own contents insurance coverage, however, insurance for your guests’ belongings is likely to only extend to a maximum of several hundred dollars. If you don’t receive this cover or the damage exceeds your policy’s maximum amount, you could be held liable for this damage.
Yes – if you make a lot of claims, you’re likely to be seen as a less safe customer to your insurance provider. To cover themselves for the apparent risk you present, insurers will raise the price of premiums for customers who make claims regularly. For this reason, it’s sometimes worth copping the brunt of the bill you receive if it’s minor enough for you to pay for it yourself and avoid potentially exposing your premiums to the possibility of a price hike.
These are two of the most common types of insurance available to homeowners. Total replacement cover insures your property for the entirety of the cost of repairing or rebuilding after damage occurs, whereas sum insured cover establishes an amount prior to damage occurring which the insurer and customer agree on.
You may end up having to pay the more expensive of the two excesses if you make a claim under a combined home and contents insurance policy. However, this won’t always be the case, so you should clarify this with your insurer ahead of time so that you’re fully aware of what you may have to pay after a claim.
Yes – usually, there’ll be some form of cover provided to you for items kept outside. There are obviously certain possessions that are unlikely to be able to be kept inside, such as a barbeque or bicycle, so you’re likely to have some protection in this area. Items left in the front yard are generally met with more scrutiny by a lender, while there are obviously restrictions on the type of item that can be covered when left outside. Some insurers will include sheds in their definition of open air, so you can access greater coverage for your valuable gardening implements under the right policy also.
