Most people consider their homes their biggest assets, and they cannot bear to imagine losing them. This is when home insurance comes into play. But what is home insurance?
Home insurance is property insurance that makes up for damages in someone’s residence. Furthermore, it also covers losses in home furnishing and other possessions. You can also get liability coverage in home insurance if there are accidents on your property or inside your home.
Let’s find out more about home insurance, how it works, and it’s types.
How does home insurance work?
Home insurance becomes vital when you become an owner of a house or an apartment. It provides coverage for the damage caused in your house along with legal liability. Furthermore, if you have acquired a home loan, your lenders will ask you to get home insurance.
Your home insurance may also make up for other insured events causing loss like rebuilding costs, and temporary accommodation.
A homeowners insurance policy pays for four forms of accidents, i.e., interior and exterior damage, loss of personal belongings, and injury taking place on the property. Before claiming any of these events, you must pay a deductible (which is out-of-pocket costs).
For instance, if you have claimed interior water damage to an insurer, the deductible is decided by a claim adjuster which is $10,000. Once the claim is approved, the homeowner will know the amount of deductible (suppose) $4000 according to the policy agreement.
However, the insurance company will provide payment of an additional cost of $6000 (as per supposition).
What does home insurance cover?
Home insurance is a collective term that comprises 6 types of cover costs.
1. Home insurance
It covers the financial losses related to the damage to a house or apartment you own. Home insurance includes a garden shed, fences, a swimming pool, and others.
2. Contents insurance
This insurance makes up for losses of your belongings like furniture, electrical appliances, clothing, and more.
3. Home and contents insurance
This insurance policy covers your house as well as your belongings inside your home.
4. Landlord insurance
The landlord insurance policy protects against the risks of renting out a property.
5. Renter or tenant insurance
A low-priced contents insurance policy that covers events like theft or fire for tenants in a limited manner.
6. Strata insurance
Residential strata insurance or body corporate insurance provides coverage costs to a damaged unit, flat or apartment named under the strata scheme.
Is it compulsory to have home insurance in Australia?
While it is not compulsory to acquire home insurance, whether household or contents insurance. But many loan lenders will ask you to get an insurance policy before making a loan unconditional.
This is how it is ensured that you are protected from financial risks as a borrower since you won’t need to pay for house damages like flooding or tornadoes.
Getting the right insurance policy
Many insurance policies will state what they will cover such as storms, fire and floods. Such types of policies are known as listed or defined events policies. While the policies providing coverage for potential mishaps are called accidental damage policies.
Most insurers let you pay extra in defined events policies for accidental damage cover.
While choosing the right insurance policy, you will need to understand what the policy will cover. This is how you will know which policy is suitable for your needs. Remember to read through the product disclosure statement PDS at the time of purchase to know the features of the policy.
Type of cover
You will have two options when deciding the type of insurance coverage.
- Total replacement cover
- Sum insured cover
Total Replacement Cover: It provides costs to rebuild your home as it was before the event. They are generally more expensive than sum-insured policies.
Sum Insured Cover: Some insurance policies pay costs to policyholders according to a set financial limit. This policy is called a sum insured cover policy and it describes the maximum value of your policy.
Sum insured policies offer a reimbursing amount for the value of your belongings in their actual condition.
For instance, a garden shed was damaged because of hail and it cost $5000 to get it fixed 5 years ago. The replacement policy will bear the replacement costs at the current rates instead of the old market replacement value.
Total cost of rebuilding
Calculate the accurate sum insured amount to get protection from being underinsured. Most insurers offer calculators on their websites to help you reach the right amount. Look for a calculator that works with “elemental estimating“. It tends to be more accurate than the cost per square metre.
Modify the excess
Many insurance policies let you modify your excess as per your needs. Compare the difference between low excess with higher premiums and vice versa. You can elevate your deductibles like health insurance and car insurance because higher deductibles mean lower annual premiums.
Ensure to find app discounts that can cut down your home insurance premium during the initial year.
Conclusion- home insurance: everything you need to know
We never know when our home or its possessions fall prey to an accidental mishap.
It is best to acquire home insurance to avoid financial losses and let your home remain in the best shape. However, while you choose to buy a home insurance policy make sure you follow this guide to help you get the right policy and check out our home finance category for more tips and tricks.
