What does home insurance cover?

What is home insurance and does it cover my belongings?

Purchasing home insurance is an important part of buying a property and being a homeowner as it provides you with financial protection should your home be damaged by external events. It is important to recognise that home insurance does not protect your personal belongings, but the actual building structure itself including garages, outer buildings and any permanent features (eg. inbuilt wardrobe or lights). Protecting your personal belongings falls under contents insurance, which is why many homeowners choose to bundle both insurance policies into one all inclusive “home and contents insurance”, however you do not have to do that.

Home insurance policies usually cover any property damage caused by natural disasters such as windstorms, hail, lightning, fire damage as well as man made damages like theft, arson and vandalism. It’s important to note that most home insurance policies do not cover floods and earthquakes, and so when deciding on a policy it’s important to think about your geographical location and what you need to be protected from.

Before approaching different insurance companies to compare and find the policy that suits you, there are two different types of home insurance you need to decide on:

Total replacement cover

As the name suggests, this form of home insurance covers the cost of rebuilding your property to the same standard that it was prior to being damaged. This type of insurance reduces the chances of underinsurance occurring, which is when the payout of your insurance policy is not enough to adequately cover the cost of repairs or rebuilding and so the homeowner has to pay the difference out of their own pocket. In this way total replacement insurance can be considered more reliable, however it is only offered by a few insurers and if you were to suffer from total property loss it may take a significant amount of time until you have access to the funding as an insurer would have to carry out a full property assessment.

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Sum-insured cover

The more common of the two, sum-insured home insurance covers property damage costs up to a certain amount decided upon by you. The danger with this type of home insurance is that if the set amount you decided on is not enough to cover the total costs of your property’s repairs or rebuild, you will find yourself underinsured and having to make payments from your own account to cover the difference which may not be possible.

Regardless of which type of home insurance you choose, you need to be aware that ALL insurance policies have their own unique exclusions, limits, caps and clauses that then vary between insurance companies. Therefore, when deciding on home insurance make sure that you shop around to find the best cover and that you pay close attention to each policies product disclosure statement, so that you are aware of any loop holes in your cover.