You didn’t buy your property without first doing some research and taking a look around the neighbourhood, so why should your home insurance be any different?
If you’re in the process of buying a property, or looking to compare and switch existing insurers, there are a few key things you need to know about comparing home insurance.
Type of home insurance available
Before you begin your comparison, it’s crucial you know which type of insurance may be best suited to not only your budget, but to your household’s needs.
There are four types of coverage to consider when comparing insurance options:
1. Contents insurance – Refers to the possessions inside your home, such as furniture, appliances, electronics, whitegoods, clothing and more.
2. Home insurance – Refers to the structure of your home, as well as your property, including fences, garages etc. May also include domestic features like air-conditioning, built-in wardrobes and more.
3. Home and contents insurance – Combination of the above.
4. Accidental damage cover – Refers to loss or damage caused by an undeliberate act, such as young children breaking an expensive appliance or spilling red wine on carpet etc.
Homeowners will often neglect accidental damage cover, which may see them missing out on coverage for life’s little accidents that may occur. This may be because this type of coverage will cost you more in repayments.
- What if I own an apartment? Residential strata insurance, also known as body corporate cover, is a type of building insurance that is mandatory in Australia. If you live in or have purchased an investment property in a strata title apartment, you are required to have this, but the cost is shared between all property owners and is generally included in the building levies. If you live in the apartment, you may still want to consider taking out contents insurance.
What you need to know before you compare home insurance
ASIC’s MoneySmart website recommends you do the following before you compare home insurance:
- Accurately calculate the cost of rebuilding your house and the value of your belongings.
- Understand the difference between total replacement cover and sum-insured cover with home insurance.
- Make sure your contents insurance covers the replacement value of your belongings ('new for old').
- Check the exclusions — what is not covered.
- Check the maximum claim limits.
- Check if your contents insurance covers your mobile devices when you're away from home.
- If you live in a disaster-prone area, check your cover for storms, floods and fires.
Keep in mind that at the end of the day, insurance can be a gamble. If you want to save money and underinsure, you may be better off financially if the worst never occurs. But if the worst does occur, you may be out hundreds even thousands of dollars to cover any damages.
Here are a few reasons why comparing home insurance really does matter:
1. Home insurance is compulsory
If you own a home outright, home insurance is not necessarily a legal requirement to have home insurance.
However, when you sign a mortgage, the legal documents will stipulate that you must retain property insurance for the life of the loan. This is because your mortgage lender will want to ensure that the asset it’s financed is protected in case of the worst. You’re not just taking out insurance for yourself, but also for the lender who gave you your loan.
If a type of insurance is compulsory, you’ll want to ensure you compare your options to give yourself peace of mind that you’ve chosen the best possible coverage for your property, contents and budget.
2. The cheapest isn’t always the best
Just because you’re not getting the lowest price on home insurance doesn’t mean you’re getting short changed.
In fact, if your research into home insurance is limited to finding the cheapest option out there, you may miss crucial details and choose a policy that isn’t actually the best choice for your household.
While price is an important factor in home insurance, it’s also about choosing the right coverage. You need to know you’re being covered for the right things and, most importantly, that you understand the fine print.
For example, when comparing home insurance, ask the insurer to play around with the contents’ numbers. Push up your coverage amount, say, from $40,000 to $60,000, and see what the dollar difference is in ongoing costs is. If the difference of an additional $20,000 coverage is the cost of one meal out a week, you may want to consider forking out the cash.
Getting the right type of coverage for your home is, as a general rule of thumb, considered more valuable than choosing the cheapest option.
3. You may be over or underinsured
One of the biggest risks you take in not comparing home insurance options is being over or under insured.
If you’ve underinsured your home or contents, you might not receive enough from the insurer to cover the full costs of any damages.
If you’ve over-insured your home, you may be paying for coverage that you don’t need, or that is in serious excess of the costs of repairs/replacements.
When choosing home insurance, it is crucial that you compare the Product Disclosure Statements of your home insurance options, not just the ongoing costs.
Does your insurer not only cover the costs of stolen contents in case of theft, but also any damage done by the burglar in the process, such as broken windows? Does the insurer cover the specific type of home you have, i.e. is it tiled, brick, concrete or veneer? What roof materials do they cover?
All of these types of questions should factor into your home insurance search to ensure you are not over or underinsured.
- If you’re unsure where to begin, you may want to consider reaching out to an insurance broker. Similar to a mortgage broker, an insurance broker can help to compare insurance options based on your specific situa