First home buyers guide to home insurance

4-minute read

What you'll learn

• What does home insurance cover?
• What type of home insurance could I need?
• What if I own an apartment, townhouse or villa?
• How much insurance cover could I need?
• When do I need to take out my home insurance policy?

 

I'm about to buy my first home. What should I know about home and contents insurance? 

Are you looking forward to getting the keys to your first home? Maybe you’re planning where to put the sofa or what size tv you can fit on the wall?

Your home is likely to be the biggest asset you'll ever purchase so it’s a good idea to consider which home insurance product and provider is right for you.

What does home insurance cover?

The purpose of home insurance is to cover the cost to repair, or rebuild, your home or replace your belongings when something goes wrong.
 

This is an ongoing cost to allow for in your budget, as it could save you a lot if something was to happen. Could you afford a big lump sum cost to rebuild or replace your belongings, or the cost of temporary accommodation if your home was unliveable? 

From choosing the right type of cover to working out the value of your contents, here are some things to consider when looking to buy home insurance.

1. What type of home insurance could I need?

The purpose of home insurance is to offer a level of financial protection against damage or loss resulting from storms, floods, fires, theft, and other incidents like burst pipes. These incidents are often referred to as insured events.
 

There are two types of home insurance to consider – building insurance and contents insurance. When both types of insurance are taken together, this is often referred to as 'home and contents insurance'.

Building insurance – covers the structure of your home

This typically covers the physical structures that make up your home buildings such as your home, garage and other lockable buildings on the property, as well as any permanent fixtures like wardrobes, kitchens and plumbing.
 

You may require building insurance as part of the requirements for your home loan. It’s a good idea to consult with your solicitor/conveyancer, lender and/or state or territory government website about how this may apply to you.

Additional inclusions of building cover you might want to consider

Other than the cost of fixing or replacing damage, building insurance policies may also include:

• temporary accommodation for you and your pets if your home is unliveable
• demolition and debris removal costs
• rebuilding and professional fees (e.g. architects, solicitors) if your home is a total loss.
   

What’s covered under a policy may be different for each insurer, so always read the Product Disclosure Statement (PDS) to make sure the policy includes what you need. For example, while damage from storms, fire and theft are generally standard inclusions, damage caused by floods may be an optional extra.

Contents insurance – covers what’s inside your home

This typically covers your personal belongings and household items against theft, damage, or loss by insured events. This may include items like clothes, furniture, computers, appliances, televisions, jewellery, curtains and carpets and loose floor coverings.

Additional types of contents cover you might want to consider

For an additional premium, some contents policies may have optional covers such as portable contents cover for belongings taken outside of your home, like mobile phones and cameras.
 

You might also be able to add accidental damage cover to your policy as an option. This covers accidents like spilling a glass of red wine on your sofa or breaking an expensive fragile item like a mirror.

The PDS should contain a list of inclusions and exclusions to help you decide whether a particular product is right for you.

2. What if I own an apartment, townhouse or villa?

If your new home is in an apartment complex or covered by a strata plan, building insurance will most likely be covered by residential strata insurance (also known as body corporate cover). The cost of this insurance is shared between all owners within the building and is included in the strata levies.
 

However, it’s important to always check with your body corporate what you are responsible for. Some items like kitchen cupboards, lights and wallpaper may not be covered under the strata insurance policy and are therefore your responsibility to replace or repair if they’re damaged.
 

Residential strata insurance doesn’t provide cover for your contents. So, if you live in an apartment or your home is covered by a strata plan, you might want to consider taking out contents insurance if you want to cover your personal belongings.

If you are buying a townhouse, duplex or villa it is important to confirm if you are responsible for your own building insurance or not.

3. How much insurance cover could I need?

Understanding the value of your home and contents is important because underinsuring is more common than you think. If you're underinsured, your home insurance policy may not cover the repair or replacement costs of what was damaged or destroyed, leaving you financially exposed.
 

There are many tools available to help you work out how much building and contents insurance you need, including online calculators which can provide an estimated value.

Building insurance calculator

Every home is different. Some have basic fixtures and fittings. Others include high-end features and materials. You may choose to use a building insurance calculator to estimate the cost of rebuilding your home.
 

The calculator considers things like the age and size of your home, whether your kitchen and bathroom are new, if there’s a deck or pool etc. Cost estimates for rebuilding may include demolition and removal fees and do not include the land value, so don’t be surprised if it shows a value that’s quite different to the price you paid for your house.

Contents insurance calculator

With your contents insurance, you may choose to use a contents insurance calculator to work out how much your belongings are worth. Or you can simply make a list of what’s going to be in each room and work out how much it would cost you to buy everything again.
 

The higher the cost to rebuild and the more contents you want to insure, the higher your home insurance premiums will likely be. However, to help with budgeting, you can usually choose whether to pay your insurance premiums monthly or annually. Keep in mind that some insurers may charge an extra fee to pay by the month, so it's a good idea to take note of this when researching.

4. When do I need to take out my home insurance policy?

Determining the best time to buy your insurance will vary based on where you live, as you, the buyer, become responsible for covering any damage to the property at different stages of the home buying journey. It’s important to consult with your solicitor/conveyancer, lender and/or state or territory government website, as your individual contract of sale may also differ to the state-based standards.
 

To ensure you're covered when the time is right, it's important that your insurance isn't a last minute decision. Take the time to look into what you do and don't need, so you can make the best decision based on your personal circumstances and your financial situation.