Choosing home insurance

Risk refers to the chance of something going wrong, like a break-in or bushfire. The decision to purchase a home insurance policy is usually based on weighing up the likelihood of an unforeseen event occurring that may lead to financial loss. The policy may help offset some of that risk, so you’re not left entirely out of pocket should the unexpected event occur (provided the event is covered by the policy).

By understanding your home’s risks, you can make a more informed decision about the type and extent of insurance you might need. Get started by:

• exploring the latest crime statistics available in your local area
• checking your local council’s property maps to assess fire, flood and storm hazards
• attending an Australian Red Cross EmergencyRedi workshop to learn about preparedness and household resilience.

There are all sorts of policies available to suit different types of living arrangements and circumstances. Here’s a summary of 3 of the main home insurance policies people consider:

Generally covers the physical structure of your home and its permanent fixtures from events like fires, storms, floods and malicious damage (subject to policy terms and exclusions). Basically, if your home was tipped upside down, it’s the stuff that wouldn’t fall out that would typically be covered.

Who it suits: owner-occupiers, property investors.

What it can cover: walls, floors, roofs, garages, sheds and built-in appliances.

Generally covers the things you keep inside of your home from events like theft, fire, flood and in some circumstances, accidental damage (subject to policy terms and exclusions).

Who it suits: owner-occupiers, renters, apartment residents.

What it can cover: clothes, furniture, carpets and rugs, whitegoods, electronics, and more.

As the name suggests, this cover typically combines building cover with contents cover in a single policy (subject to the terms set out in the PDS).

Who it suits: owner-occupiers.

What it can cover: the physical structure of the home, plus your personal belongings.

Many different factors are used to determine home insurance premiums. Depending on the policy, this might include:

• Location: whether you’re in an urban or rural location and the various risks relevant to your area, such as flood, bushfire or high crime rates.
  
  
• Quality: some fixtures and fittings of a home may be more expensive to replace than others, impacting what it might cost to insure them.
  
  
• Value: some contents may be worth more than others, for example, a toaster from Kmart will likely cost less to replace than a Smeg.
  
  
• Optional extras: whether you add on extra cover in addition to standard policy inclusions. For example, some NRMA Home Insurance policies don’t automatically include Portable Contents cover or Accidental Damage, instead allowing it to be added as an optional extra. 

You may also want to check that you’re not under- or over-insured, as this may impact what you pay overall and the amount you may be able to claim. When working out the sum-insured amount for your home, contents or both, it’s often helpful to:

• Create a home inventory of all your belongings, including how much they cost when you first purchased them, and how they are worth now if you were to replace them like-for-like.
  
  
• Determine what it would cost to rebuild or repair your home if it was damaged or destroyed. This might involve getting a professional appraisal or valuation. When doing this, consider factoring in things like the cost of labour as well as materials to achieve a like-for-like result.
  
  
• Use an online home value calculator¹ to generate a preliminary estimate of what your building and belongings might be worth.

Only you can decide what type of home insurance may or may not be right for you, by considering all your personal circumstances alongside the ins and outs of any given policy. To do this, remember to:

• Check the PDS alongside your other research to make sure you have all the information you need to make an informed decision.
  
• Familiarise yourself with risks that might be specific to your home and local area.
  
• Understand the difference between different types of policies.
  
• Thoroughly consider the value of your home and belongings when determining the amount you want to be insured for.