For first timers, home insurance jargon can be hard to decipher, though it is important to understand policies and coverage options before buying home insurance for the first time.
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This article breaks down home insurance for people who are new to the terminology and coverage options.
Why you need home insurance
If you've never had home insurance before, it's important to understand its benefits and why you need it. Depending on your policy, home insurance can cover your house's building and fixtures, cover legal costs if someone is injured on your property and provide financial relief for replacing possessions in your home if they are damaged.
Home insurance is often a requirement from your bank if you have a mortgage, so they can be confident that you'll pay off your loan if your home is damaged. Insurance provides financial security to rebuild or replace your home and belongings in the event of disasters like fire, flood, or impact damage.
There are two key types of home insurance: home or building insurance and contents insurance. These are designed so that if the worst happens, you have the resources to recover.
Home insurance terms
Here's a quick explanation of key home insurance terms to help you get to know the jargon before breaking down coverage options.
Coverage
Your insurance coverage outlines the scope and details of your insurance policy, specifying the risks you're protected against, who or what is insured, and the amounts of money you are insured for.
Premium
An insurance premium is the amount of money you pay to your insurance company for coverage under an insurance policy. It can typically be paid on a monthly or annual basis and is required to maintain the policy and its benefits.
Excess
An excess is the amount you may need to pay when making a claim. Opting for a higher excess can often lower your premiums. It's crucial to review your policy documents to understand the types of excesses and how they apply to claims as the excess may be waived in certain situations.
Claim
An insurance claim is a request you make to your insurer for compensation after experiencing a loss or damage that is covered by your insurance policy. Essentially, making a claim is using the insurance you have taken out.
Types of home insurance
There are two fundamental kinds of home insurance: home or building insurance, and contents insurance.
Building insurance covers your home's structure against damage from events such as floods, storms, fires, and theft, covering the costs of necessary repairs.
While contents insurance protects the personal possessions within your home, including furniture, electronics, clothing, and other valuables, from risks like theft, fire, flood, and accidental damage.
Together, these policies provide comprehensive protection for both your property and your belongings, and different combinations and variants of home and contents insurance can be used for different situations.
Outlined below are common insurance types for people in different housing ownership or renting situations.
Home insurance for homeowners
For home owners and occupiers (ie. you own and and live in your home) home/building insurance and contents insurance is often taken out so that the home and possessions inside are both covered.
You may purchase home insurance and contents insurance separately, or potentially save money and time by purchasing a combined home and contents insurance policy.
Home insurance for renters
If you are renting your place, you can skip the building insurance (which should be covered by your landlord) and only take out contents insurance.
Some insurance providers call contents insurance renters insurance, reflecting the fact that contents only policies are suited to tenants of rental properties.
Home insurance for landlords
Landlords can take out building insurance only, or specialised landlord insurance that is designed for property owners who rent out their homes. This insurance protects your investment property against loss, theft, or malicious damage caused by tenants.
It can also cover the costs of repairing or rebuilding your property after natural disasters such as storms, floods, or fires. It also provides legal liability protection if a tenant is injured or their property is damaged in your rental home.
Strata insurance
Strata insurance is typically taken out by the owners' corporation or body corporate of a strata-titled complex. This specialised insurance covers the costs of repairing or replacing the external walls of a building and common property areas within the complex.
The price of strata insurance depends on the property's characteristics and the cost to repair or replace the building. Strata insurance is essential for ensuring that shared spaces and structures within the complex are protected against potential damage or loss.
Understanding coverage options
Not only are there different types of coverage, but also different levels of coverage.
When choosing home insurance, there are two main levels of coverage to consider.
i) Sum-insured cover: This type provides an estimate of how much it would cost to rebuild your entire home. It sets a specific limit on the amount of coverage based on this estimate.
ii) Total replacement cover: This coverage offers an estimate of the cost to rebuild your home to the same standard as before. It aims to cover the full cost of rebuilding, regardless of price fluctuations.
Factors that affect home insurance premiums
Factors influencing home insurance premiums include:
- The amount of excess you're willing to pay when making a claim can lower your premium.
- The location of your property, especially if it's in a high-risk area prone to natural disasters or has a high crime rate.
- The features of your home, including things like its age and size and the materials it was built with.
- Your chosen level of coverage, whether basic or comprehensive, directly impacts monthly costs.
- Your claims history can increase premiums based on previous claims filed.
The price of your home insurance premium can be affected by many factors, and often you'll get what you pay for.
Don't make the mistake of selecting the policy and coverage on price alone, but scrutinise inclusions and exclusions to find the best value.