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How home and contents insurance works in Australia
Always review what your insurance does and doesn't cover, based on the risks to your home and belongings.
Flooding can occur in various ways, and not all types may be covered by the insurance policy you choose.
Get quotes from multiple insurers when buying or renewing home and contents insurance. There are two main types of household insurance: building insurance and contents insurance. 'If you own your own home or the bank owns your home, ideally, you're insuring both and if you're renting a place, then you just want to insure your contents,' Choice's insurance expert, Jodi Bird says. Contents can range from electronics and sports equipment, jewellery and medical aids, through to furniture, kitchen appliances and family heirlooms. With contents insurance you can repair or replace belongings if they're damaged or lost by insured events.
'An insurer's calculator will help you think about how much all those things are worth,' Mr Bird explains.
Make an inventory of contents you want ensured and go through it ticking off each item estimating their worth. Credit: Eleganza/Getty Images Make sure to review your coverage The Product Disclosure Statement (PDS) outlines what your policy covers and excludes. One common exclusion many people overlook is leaving the home unoccupied for an extended period. 'If you're going on holidays for an extended period of time, or for example, moved out of your home while it's being renovated, you actually need to tell your insurer because they might not cover you if you're away for too long,' Mr Bird warns. A typical home insurance policy will covers incidents such as theft, fire, storm and flood. Always check exclusions that may apply to your circumstances. For example, if you live near the coast, see what your policy says about sea water damage. 'So, things like high tides, storm surges, which is when the sea level rises with a storm or tidal waves, those kinds of things are often excluded from home insurance,' Mr Bird says. Another common cover exclusion applies in fire incidents.
'You may not be covered for something burnt, where there was no actual flame. For example, if you knock a heater on the floor and it didn't cause a flame but burnt your carpet, your carpet won't be insured.'
Most home insurance policies will cover you for animal damage, but not for damage caused by your pet. Credit: sturti/Getty Images For homebuyers Home insurance is usually required to take out a mortgage. Andrew Hall is CEO at the Insurance Council of Australia. He says prospective homebuyers should shop around for insurance while they're exploring finance options.
'When you buy a home in Australia, your insurance should always cover what is the most likely risk of something happening to your home. So, if you're living in an area where there is a lot of bush or forest, you need to ensure that you've got cover for fire.'
When it comes to insuring your home, you're insuring for the cost to rebuild the actual building, not the market value of your home, which can be different. Credit: svetikd/Getty Images Mr Hall says flooding is the biggest challenge because it's a very predictable risk in flood-prone areas and the most expensive to insure.
He recommends to always check with the real estate agent and local council about flood risks in the area. Some councils will let you know if a property is in a flood zone — but in many parts of Australia, that information isn't always provided.
It's very important that you proactively seek out information about the natural peril risks that may be around that property. Andrew Hall, CEO, Insurance Council of Australia. Dealing with increasing premiums Across Australia, it is estimated that at least 11 per cent of home buildings are not insured. And in some areas the rates of non-insurance are even higher. Professor of Strategic Management at the University of Queensland Paula Jarzabkowski is a global expert in disaster insurance and insurance protection gaps.
She says people may choose to remain uninsured or underinsured for various reasons, but affordability seems to be the main concern.
Latest ABS data reveal insurance is one the main contributors to rising living cost, due to higher premiums for house and home contents insurance. Credit: PamelaJoeMcFarlane/Getty Images 'Underinsured means that you may be insured for some aspects of what you need, so for example when you're in a flood zone and you're insured for theft but don't have flood insurance,' Prof Jarzabkowski explains. You may also be underinsured if you insure your property or belongings for the same amount each year, even as replacement costs rise.
'Underinsurance here means you don't have enough insurance for replacement in an inflationary market.'
If you can't afford insurance for weather events, consider buying basic cover for things like a washing machine breaking down and flooding your floor. Credit:/Tetra images RF Whether or not you're insured for a natural disaster risk affecting your home, Prof Jarzabkowski advises to consider the following:
What will take with you in case of an evacuation warning?
Have you backed up important documents online?
Do you regularly clean your gutters and check your valves? These steps can help prevent backwash and overflow flooding from your gutters and drains.
Are you maintaining trees around your home? Overgrown or unstable trees can fall during strong winds and cause damage.
If you're in a cyclone-prone area, are your windows fitted with strong shutters?
Is your roof properly secured?
Keeping your gutters clean from leafage can help protect your home in case of flood or fire. Credit: LittleCityLifestylePhotography/Getty Images Insurance contracts are often long and filled with terms that can be difficult to understand, but it's important to review them carefully. 'I guess that we're all a bit guilty, aren't we sometimes, of ticking 'yes, I agree' to everything, without either knowing what we agreed to or just being in a hurry when you want to renew your policy,' Prof Jarzabkowski says. So it's essential to know what you're covered for — and what you're not.
'Insurance is a financial product and people get frightened of that, but it's important that we read the terms and conditions of the products we buy and get comfortable asking the questions.'
It is in your rights to ask and to have things explained to you in a way that you can understand. Professor Paula Jarzabkowski, University of Queensland Even if you are just seeking to renew your insurance, it is still worth worth shopping around and negotiating to avoid what is known as 'loyalty penalty', says Choice's insurance expert Jodi Bird. 'Intuitively we think that if we're loyal to a business, they're going to reward us with isn't how it works with insurers.
'If you just renew your premium every year, they'll end up charging you more on your renewal form than they might to a new customer trying to get the same insurance.
If you are having trouble paying your insurance premium, seek quotes from different providers and ask your insurer for options to reduce your premium. Credit: ToucanStudios/Getty Images You can call your insurer and ask whether they're offering you the same competitive price they would give a new customer — and let them know you're prepared to look elsewhere if not. Ultimately, doing your research first puts you in a stronger position to negotiate. Mr Bird suggests your bargaining power increases when you've compared premiums across the market and know what other insurers are offering. If you are struggling with debt and need support, you can call the National Debt Helpline on 1800 007 007 to speak with a financial counsellor.
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