Looking to move into your first home as a homeowner? It’s no secret that there’s plenty of budgeting and financial planning that needs to be done even prior to signing your sale contract. Prospective homeowners must consult with their mortgage brokers, banks, and building agencies if they’re looking to build over buy, with each of these appointments often being accompanied by some of life’s biggest expenses. With all that there is to consider, it’s only natural for some of these expenses to fall through the cracks.
Home insurance is one particular necessity that’s often overlooked. In all the excitement and chaos of the home buying process, it’s common for prospective buyers to all but forget that their new investment needs to be secured if any insured events were to arise. The fact of the matter is that you’ll need your home and contents insurance to begin ideally on the day you move into your new property. Taking the time to compare policies alongside home loans is crucial, even if just to get a headstart on becoming responsible, spend-savvy homeowners.
But how do you know what to look for when comparing different home insurance policies, especially if you’re yet to buy your first home? We’ll be unpacking all that there is to consider when shopping for home and contents insurance below, just to help Aussie consumers feel as prepared as possible when it comes time to buy their first property.
What is home insurance?
Let’s start with a basic definition of home insurance. Home insurance is typically designed to cover the cost of repairing or replacing your home if it becomes damaged as a result of an insured event. As maintenance and repairs are generally not responsibilities that fall to renters, venturing into these new expenses can feel daunting for first-time homeowners. This is yet another reason why securing the right home and contents insurance is crucial.
As you may have already assumed, the term ‘insured event’ refers to any incident that is covered by your home insurance policy. Common examples of insured events include fire, theft, or storm damage. Many home insurance policies may also provide cover for water damage caused by faulty appliances, or impact damage caused by vehicles. As home insurance covers the repair or replacement of your home, it’s also often referred to as ‘building insurance’.
Home and contents insurance effectively bundles your home or building insurance alongside insurance for the contents of that property. The contents of your home can typically be categorized as either general, portable or valuable content. General contents refers to items like furniture, carpets, clothing, and fixed or unfixed home appliances. Portable content refers to items like handbags, mobile phones, laptops, and other accessories, tools, or belongings that leave the home with you regularly. Valuable contents are high-value items like jewellery, art, vinyls, and other collections of niche items. Contents insurance can also provide cover for insured events like storms or fire, just like your home insurance.
How to secure the right home insurance policy
Just as there’s a major difference between comprehensive and third party car insurance, so too are there great distinctions between the two different types of home insurance policies, these being sum-insured cover and total replacement cover. Sum-insured cover effectively provides homeowners with cover for a set amount, or a predetermined estimate of how much it would cost to rebuild your home entirely. This estimated amount is usually calculated in tandem with your insurance provider’s policies and your own understanding of the value of your home and contents.
Contrastingly, total replacement cover is designed to cover the costs of repairing or rebuilding your home to the same standard it was at prior to damage caused by the insured event in question. You’re less likely to experience being underinsured with total replacement cover as this type of policy generally allows homeowners to make larger claims. That being said, total replacement cover also runs the risk of being accompanied by a larger excess and being provided at a significantly larger policy premium than sum-insured cover, which sees homeowners paying only for what they own.
As the depreciation of your property may also impact your building sum-insured (or the sum insured for your home insurance alone), it’s imperative that you revisit your sum-insured policy annually or when looking to renew your policy, though more on this later.
Be aware of exclusions when comparing policies
The next step from here is to finally start comparing policies offered by different insurance providers. When comparing home and contents insurance policies, it’s imperative that you gain a thorough understanding of all the inclusions and optional extras that are available to add onto that policy. Some examples of inclusions that you may want to keep an eye out for include cover for the costs of demolition and debris removal for home repair and rebuild claims, as well as cover for the costs of meeting state building regulations.
Optional extras can include additional cover for your valuable and portable contents, as well as accidental damage cover for inside the home. Accidental damage cover can provide homeowners with a little more security in unfortunate circumstances, including damage caused by children or pets.
Keep in mind, however, that being aware of a policy’s exclusions is truthfully just as important as reading up on all of its inclusions and optional extras. For example, although your valuable content may be insured in the event of theft, damage caused by poor maintenance (i.e. loose or unset gemstones in a piece of jewellery, or a piece of art procuring solar damage due to prolonged sun exposure) is unlikely to be covered by your contents insurance policy. Understanding what you won’t be covered for is crucial to selecting the right cover for you and your fellow household members.
Renewing your home insurance policy
So you’ve done all your preliminary research, paid your premium, and are currently enjoying the peace of mind that accompanies securing the right cover for you. What’s next? As we alluded to earlier, your home and contents insurance needs are by no means static. Families can accrue more assets, or renovate their home to boost its resale value. If you feel that your policy is in need of a revisit, then you should feel encouraged to do so. Your insurance provider can work with you to customize your policy at any point in your contract.
If no drastic changes occur in your household, however, then you can simply wait until your policy period comes to a close and just renew your policy then. Even if you’re seeking to renew, however, we still encourage homeowners to look over their original policy agreement before signing the papers for another year. In taking the time to review your policy prior to renewal, you may be able to find opportunities to lower your premium or excess, or even add optional extras to your existing policy to provide you and your family with better cover.
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All things considered, the most important element of securing home and contents insurance is practicing good attention to detail. This means thoroughly outlining your budget for insurance when buying your first home, and making absolutely certain that all your most important assets are covered by your finalized policy.
Be sure to compare all the policies available to you and to consult with trusted financial advisors before making any final decisions with regards to your home and contents insurance.
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