Household insurance

This article was last updated by the author in October 2016.

A brief introduction to household insurance.

Contents
Overview »
Typical cover provided »
Optional extensions »
Key exclusions »
Ratings factors »
Product providers »
Overview
Household policies are package policies. They combine, within a single document, a range of different covers; such as damage to the insured’s own property together with legal liability for injury to others or damage to their property. There are a variety of different household packages available, including:
buildings only policies
contents only policies
buildings and contents insurance together within one policy
combined policies covering buildings and contents, plus a range of optional extensions (such as personal possessions and freezer contents).
Many insurers have rebranded these products as home rather than household insurance policies.

Apart from the typical cover described here, specialist policies are also available; for example, for home workers and holiday homes.

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Typical cover provided
Buildings

The buildings section of a household policy is designed to cover the structure of the home including additional elements, such as walls, fences, paths and driveways, garages, outbuildings and fuel storage tanks. The term ‘buildings’ is specifically defined in the policy wording.

All insurers provide cover for damage caused by a range of perils, including:

fire, lightning, explosion and earthquake
riot, civil commotion, strikes, labour or political disturbances, malicious damage or vandalism
storm and flood
falling trees or branches
escape of water or oil
theft or attempted theft
impact
subsidence, ground heave or landslip
falling television or radio receiving aerials, their fittings and masts.
A number of other items are automatically included in the cover provided, such as:

accidental damage to services
accidental damage to fixed glass and sanitary fittings
legal fees, architects’ and surveyors’ fees and debris removal costs incurred following damage to the buildings
loss of rent or the cost of alternative accommodation
repairs to plumbing after freezing
repair of damage following forced emergency access
sale of the home, giving the purchaser the benefit of the insurance up to the date of completion
replacement of locks following loss or theft of keys
the cost of tracing leaks following an escape of water causing damage to the home
Contents

The contents section of a household policy covers any household goods and personal possessions belonging to the insured or members of their household or for which they are legally responsible. Certain items of property are specifically excluded, such as securities, certificates and documents and livestock and pets.

Tenant’s fixtures and fittings and a limited amount of business equipment are also covered, where applicable.

Insurers usually place limits on single articles of value (between £1,500 and £2,000), the total amount of valuable items (one third of the contents sum insured or a fixed amount of £7,500) and money (£300 — £750).

The perils covered are largely the same as those covered by the buildings section, subject to minor variations in the wording. The main difference is in relation to theft cover, where loss of money or credit cards and loss or damage while the home or any part of it is let or sublet, must involve the use of force and violence.

A number of other items are automatically included in the cover provided:

temporary removal of contents
contents in the garden
accidental damage to the contents during household removal
accidental damage to fixed glass and mirrors
accidental damage to entertainment equipment
the cost of alternative accommodation following insured damage
loss of heating fuel or metered water
the cost of replacing external door locks and keys, following the loss or theft of keys to the home
temporary increases in sums insured to cover, for example, wedding gifts and gifts and food bought for Christmas or other religious festivals
loss of title deeds.
Cover is most commonly provided on a ‘new for old’ basis where the full cost of replacing the property as new is paid, subject to the limit of the sum insured. Sums insured are usually index linked, so that they rise in line with inflation.

Legal liability

All buildings and contents household policies automatically include liability cover.

The buildings section covers liability arising out of owning the home, including liability incurred under the Defective Premises Act 1972.

The contents section covers liability arising out of occupying the home. The insured’s personal liability as a private individual, liability as an employer of domestic servants and liability as a tenant, where applicable, are also covered.

A limit of indemnity (typically £2 million) applies to any one claim. If the claim involves an employee being injured or falling ill, the limit of indemnity is usually increased to £10 million.

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Optional extensions
Buildings and Contents

The main optional extension to buildings and contents cover is full accidental damage cover.

In addition, there are a range of optional sections of cover which can be added to a household policy, including:

personal possessions: all risks cover for personal possessions regularly taken outside the home
money and credit cards: accidental loss of money and/or loss due to fraudulent use of credit cards
pedal cycles: accidental loss of or damage to pedal cycles and accessories
sports equipment: accidental loss of or damage to sports equipment and specialist sports clothing
frozen foods: loss of or damage to frozen foods due to a change in temperature or contamination by freezing agents
legal expenses: the legal costs involved in taking legal action against third parties or defending claims against the insured
home emergency: the cost of call out, labour and parts in the event of a home emergency
assistance services/emergency helplines: 24 hour helpline covering legal advice and emergency assistance with repairs.
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Key exclusions
Each of the perils and extensions are subject to specific exclusions. Monetary limits also apply to many of the policy extensions.

In addition, there are exclusions which apply to all sections of a household policy:

war risks
radioactive contamination
sonic bangs
pollution
terrorism
failure of computer equipment to recognise the true calendar date
confiscation of property
deliberate acts
existing damage which arose before cover started
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Rating factors
The rating of household policies is based on the assessment of a wide range of risk factors. The most significant of these is the postcode of the risk address, as statistics can be used to predict the likelihood of loss. Other risk factors include the age and occupation of the insured; age, use and construction of the property; security; previous claims; and insurance history.

Premiums are calculated by applying a rate to the buildings and contents sums insured.

Alternatively, some insurers offer policies which are rated on the number of bedrooms. Cover is automatically provided for a specified amount: typically £500,000 to £1 million for buildings and £35,000 to £75,000 for contents.

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Product providers
The market for household insurances is very competitive. Insurers will attempt to differentiate their product from that of their competitors by variations in premiums, cover provided and the terms and conditions applied.

There are a wide range of suppliers, including traditional intermediaries, banks, retailers and insurers selling direct to the public. It is increasingly common for household insurance to be purchased over the internet, including through aggregator (price comparison) websites. The insurance industry is also in the early stages of engaging with new technologies such as smartphone apps, Facebook and Twitter. This has mainly been as a customer service, communication, relationship building and marketing tool, although some also offer the facility to purchase and service policies.
Whether we own or rent, our homes and our possessions are precious. Choosing to insure them, and making sure you have the right insurance products for your circumstances, offers peace of mind and lowers the financial pain of repairing your home and replacing damaged or stolen belongings.

You can choose to insure your property, its contents, or both.

The most common forms of household insurance are:

Home insurance – covers financial losses associated with damage or loss of a property you own. Continue reading this section for more information
Contents insurance – covers financial losses caused by the loss, theft or damage of your possessions. Click here for more information
Home and Contents – policies that combine the features of both types of insurance
Renter’s or tenant’s insurance – a low-cost contents policy for tenants that provides limited cover for events such as fire and theft. Click here for more information.
Landlord’s insurance – covers the risks associated with renting out a property. Click here for more information.
Strata insurance – covers financial losses associated with damage or loss to a property that operates under a strata-title, company title or torrens title arrangement with multiple units. Click here for more information
To find an insurer that offers these types of policies, visit www.findaninsurer.com.au

Home insurance
Home insurance (also called property or home building insurance) is essential if you own or are buying a home. This type of insurance can cover you for damage to your house or apartment and legal liability. Your lender usually requires you to have it if you have a home loan.

Most home insurance policies cover the main dwelling, garage and other outbuildings that can be locked up, home improvements at your site, and fixtures or items permanently attached or fixed to your home such as light fixtures and built in wardrobes.

Your home insurance policy may also cover other events that cause loss or damage, and may pay for costs such as rebuilding fees and temporary accommodation for home owners.

Many different types of home building insurance policies are available to suit a wide range of living circumstances. It’s important to think about your specific risks – for instance, you may live in a flood or cyclone-prone area, or near fire-prone bushland – and find a policy that covers the risks you wish to insure. Most policies cover storms, cyclones and bushfires, but not all insurers offer flood insurance.

Having enough home insurance

It’s important to make sure you’ve got the right amount of cover for your home so that you’re not underinsured. Your insurance cover should always match the replacement cost of your property. This means in the event of a claim your replacement cost will be matched by your sum-insured.

You should also consider if the sum insured is enough to cover any supplementary costs and expenses. For more information on total replacement and sum insured policies click here.

You can find calculators to help you work out the cost of rebuilding your home or replacing your contents here.

Underinsurance can mean you end up paying the gap between your insurance payout and the costs of replacing or repairing your building, plus other costs – such as rental accommodation – while your insurance claim is assessed and finalised and rebuilding is underway.

For more on underinsurance and how to minimise your risk click here.

Supplementary expenses and costs
Rebuilding your home after it has been destroyed or badly damaged can be a financial nightmare and a logistical headache. You will have to pay for labour and materials.

You will also incur supplementary costs. These are other common expenses (such as temporary accommodation, professional services such as architects and surveyors), and site clearance and preparation.

Each insurer treats these costs differently. Supplementary cover might be included in the sum insured or might be an additional amount listed under your policy. When purchasing your insurance, review the Product Disclosure Statement (PDS) to make sure you know if these costs are covered. If they are included in the policy, ask yourself what services and expenses are covered and are there any limits or caps.

How premiums are calculated

The premium for home insurance is based on the likelihood of a claim being made on your policy in the future. Your insurer may take into account many different factors when calculating your premium, including:

The level of cover you have chosen
How your home is occupied
The construction materials
The basic excess amount you choose
Location of your home
The year your home was built
How you use your home, for example residential or business use
Applicable government charges
The risk profile of the property
For more information on what goes into your premium click here.

Discounts and savings
Insurance companies may reduce your premium if certain safety and security measures are in place, such as deadbolt locks, fire extinguishers, smoke alarms and security systems. In some cases, these items may be required under the policy.

Once your premium is calculated, your insurer can then work out if you are eligible for any discounts such as:

Linked policy discount
Multi-policy discount
Years of insurance discount
No-claims bonus
Your policy details, along with any discounts you have, will be shown on your current Certificate of Insurance.

What else is included?
The final amount you pay will also include:

State and territory government stamp duties which range from 11 per cent (South Australia) to 6 per cent (ACT). These are applied after the GST
In NSW, each policy includes an Emergency Services Levy (ESL) that helps fund fire and other emergency services, which is applied to the policy before any other taxes. The ESL is applied to the premium before the 10 per cent GST and 10 per cent stamp duty. A fire services levy is also applied to some commercial policies in Tasmania
Goods and Services Tax (GST) is an additional 10 per cent of the premium
Choosing the right policy

Some insurance policies will specifically define what is covered, such as fire or storm. These policies are called defined or listed events policies. Other people prefer to be covered for any potential mishap – these policies are known as accidental damage policies.

Some insurers offer defined events policies with an option to pay extra for damage to your home that is caused unintentionally. You may also be able to take out optional cover for things like electric motors that burn out and are part of your home, such as ducted air conditioning.

When purchasing a policy, you will also have to choose between sum insured or replacement cover.

Total replacement or sum insured?
Total replacement cover includes all the costs to rebuild your home to the standard it was prior to an event. However, most insurance policies cover a policyholder up to a set financial limit. This is called the sum-insured and represents the maximum value of your policy. Total replacement policies are usually more expensive than sum insured policies.

Sum insured policies will reimburse you for the value of your possessions in the condition they were in just before they were damaged or stolen.

For example, a roof that cost $6000 to install six years ago might cost $9000 to replace if it is ruined by hail damage. A replacement policy will cover the whole cost of replacing the roof at today’s prices, not just a fair market value for the old roof at the time of the loss.

Choosing the right sum insured for your property and contents is important because it represents the maximum amount your insurer will pay in the event of a claim. This is on your Certificate of Insurance. Should the worst happen and you have undervalued your assets, you may then have to find and pay the difference between your sum insured and the rebuilding costs.

Your home insurance sum insured should reflect what it would cost to rebuild your house today using the same materials and the same style of fixtures and fittings. The cost to rebuild your home is not its real estate market value.

It is your responsibility to make sure you take out enough insurance to cover replacement costs. Many insurers offer online calculators to help you determine the right level of cover for your home. You should also check whether your home insurance pays for supplementary costs.

Linked policy packages
Many insurers will offer home and contents insurance as a linked policy package. Take the time to compare a few different policies before you make your final decision, to make sure you have the best cover possible for your budget and that the payment you receive will cover the loss of all your belongings.

Managing your insurance
A standard requirement of your insurance policy is to keep the property well maintained and repair any damage or deterioration. If damage occurs because you haven’t maintained your home properly, your insurer might not cover some or all of your damage or loss.

It’s important to review your policy each year and add any renovations or alterations that might affect the value of your property.

When protecting what most people would consider their most valuable asset, it’s important to remember the least expensive policy may not be the best one for your needs.