It’s easy to forget about home and contents insurance – until you really need it.
But what type of insurance best suits your needs as a homeowner, tenant or landlord, and why? We take a look at the basics.
According to the Insurance Council of Australia (ICA), non-insurance – that is, having no home insurance at all – is a significant issue in Australia. ICA research has found that people who have mortgages are more likely to be insured while those with less savings, who are therefore worryingly more vulnerable in the event of loss, are among those most likely to be non-insured. Other groups likely to lack insurance are, perhaps unsurprisingly, younger people and singles, as well as people living in urban centres (like our area).
Underinsurance, which is having insufficient coverage, is another problem for many Australians. A survey conducted for the ICA found that 83% of households believe they may be underinsured when it comes to home and contents insurance.
The high cost of insurance premiums is a major reason why people fail to take out insurance. However, when you’re dealing with your biggest asset this may be a false economy. If you suffer a major or complete loss of your home and/or its contents, such as from fire, water damage or theft, you are likely to lose far more than the cost of your annual premiums.
So, what kind of insurance should you consider taking out, and why?
Home and contents insurance
While home and contents insurance are frequently combined, they are actually two different types of insurance.
Home insurance covers the building itself and its fixtures, such as plumbing, flooring and cabinetry. It can also cover legal costs if someone is injured on your property.
Contents insurance covers your household items and personal belongings, such as furniture, artwork, clothing, electronics and jewellery.
Owner-occupiers usually take out home and contents insurance as a package. Tenants typically only take out contents insurance.
How much insurance do you need?
With both home and contents insurance it’s important to work out how much it would really cost you in the event of a major or complete loss. Many people underestimate this, so it’s great to get advice for your particular circumstances if possible. Most insurers have calculators on their website that can help you work out the cost of completely replacing your home and/or contents. Look for a calculator that asks for lots of details about factors such as whether your home is built on a slope or the quality of internal fixtures and fittings.
For contents insurance, ideally, you will take a total inventory of every room in your home, looking at all your possessions and estimating the cost of their worth and replacement. Be sure to get up-to-date valuations for major items such as artwork or jewellery.
Insurance for renters
If you’re renting or own an apartment or unit under a strata title, you only need contents insurance, as your landlord or body corporate is responsible for insuring the building.
Landlord insurance varies depending on the policy, but is an insurance policy for a property that you own but rent out rather than live in. Some lenders require it as part of their loan conditions for investment property purchases.
Landlord insurance may cover you for risks similar to a home and contents policy, such as public liability, storms, fires, floods, malicious damage and theft. You may also select cover for loss of rental income in the event a tenant defaults or breaks their lease. Landlord insurance may also help cover the legal costs of evicting a tenant, or damage that they cause. As with any policy, check exactly what is, and isn’t, covered.
It pays to regularly review your insurance policies. Take time to:
- Read the Product Disclosure Statement (known as a PDS) so you know exactly what you may be covered for.
- Document (with photos or valuations) any specific items you need cover for.
- Ensure you have adequate insurance that takes into account your current situation, and any new purchases (for contents), or alterations or additions that may have been made to the property (for home building insurance).
- Shop around for the best deal, and compare quotes from several insurers.
- Consider what type of excess to fit your needs – having a low excess can mean higher premiums and vice versa so weigh up the pros and cons.
- Check the fine print to see if the policy offers cover for natural disasters, which could include events like floods, bushfires and storms.
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