Buying a home is likely to be the biggest financial investment you’ll make in your lifetime, and it’s important to protect this asset.
That’s why you should seriously consider taking out insurance, and making sure it’s adequate for your needs.
Building insurance covers the actual structures against damage like natural disasters, accidents or vandalism.
In addition to the home, it may cover garages, fences, paved driveways, hot water systems and air conditioners (appliances that are part of the property).
The policies may also include minor damage, like broken windows or locks caused by vandalism.
Although building insurance is not compulsory in Australia, lenders often require this insurance to protect the property. If your home is destroyed, and it’s not insured, you’d still have to repay the home loan.
If you buy a new home, your building insurance cover must start on the settlement date because that’s the date on which the risk passes to you.
Building insurance can have add-on products like:
- Alternative accommodation for you and your pets if you can’t live in the property while it’s being repaired or rebuilt
- Legal liability cover for accidental injury or damage to another person
You should also check the exclusions. If, for example, your property is in a flood-prone area, flooding may be excluded, which would mean you’d have to buy flood insurance separately.
How much building insurance do you need?
The insurance should be sufficient to cover your home if it’s completely destroyed, including additional costs like first clearing the debris.
You can work out the cover you need with an online calculator.
Alternatively, you can check what it would cost you to rebuild your home from scratch, at today’s prices.
For units, the body corporate, also known as the owners’ corporation, is responsible for the building insurance, so owners pay premiums indirectly through their levies.
The insurance policy will normally include an amount per unit, and an amount for common areas. So if only your unit is destroyed, your claim will be limited to the cover allocated to your unit.
Contents insurance protects everything inside your home like your furniture, ornaments, clothes, jewellery and appliances.
Contents insurance can also protect consumables, for example if the power goes out and the contents in your fridge spoil.
Your cover amount should be high enough to replace all of your belongings. If your cover is too low, you’re considered to be self-insuring the balance and any claim will be reduced by the self-insured amount.
You can work out how much cover you need using an online calculator.
Insurance companies can replace items, pay for them to be repaired or give you the money to buy a replacement yourself. They may cover you to replace an old item with a new one.
You will need to separately list high-value items and items that are portable. Portable items include your smartphone, notebook, handbag and jewellery.
Contents insurance may include accidental damage, like if your cat knocks the TV over. It could also include storage costs.
It’s vital to tell your insurance company if you move, because that will affect your cover and your premiums.
You can get combined building and contents insurance policies.
Other insurance you can consider taking out include:
- Mortgage protection insurance (pays the home loan premiums when you can’t)
- Life insurance (can settle the home loan if you die)
- Landlord insurance for an investment property (covers legal expenses to evict a tenant, loss of rent and damage caused by a tenant)
Well Money is an award-winning mortgage lender that can finance an existing or new home. Click here to find out in just a few minutes whether you qualify for one of our home loans or call us on 1300 899 724.