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Home insurance for first home buyers: what you need to know

Key points

  • Home insurance is a type of policy that can provide financial coverage for your property.
  • Home insurance premiums vary depending on your home's risk factors.
  • Home insurance is an important home ownership cost for borrowers to budget for. 
Collage of a woman researching home insurance on her laptop.

Finding your dream home is no small feat! Once you have your home loan settled, celebrations are definitely in order. But there's one last item to consider: home insurance.

Home insurance, sometimes called home & contents insurance, is a type of policy you can take out that gives financial coverage to your building and belongings in case of damage, loss, or theft.

While home insurance is not required in Australia, having adequate building coverage might be a condition of your new mortgage.

So what do first home buyers need to know about home insurance? Let's look at how to compare policies.

What is building insurance?

Building insurance is a type of home insurance policy that specifically covers the structure of your home. It is designed to financially protect you against things beyond your control like bushfires, floods, or a natural disasters like cyclones.

There are two types of building insurance cover to choose from:

  • Total replacement cover. Includes all the costs to rebuild your home and restore it to the state it was in before the insured events.
  • Sum-insured cover. This covers damage up to a fixed amount. 

What is contents insurance?

Contents insurance is a specific kind of policy that covers your household belongings, such as your TV, furniture, clothes, and so forth. For this reason, it's quite a common policy for renters.

If you already have contents cover, it might be worthwhile bundling this with building insurance cover when you buy your first home. Many insurance providers offer multi-policy insurance discounts. This might be the most cost-effective way for you to insure both your home and your belongings.

Do I need home insurance when buying property?

Home insurance isn't mandatory, but your home loan lender may require is as a condition of your contract, in addition to any lenders mortgage insurance (LMI), which protects them in case you default on your mortgage repayments

This doesn't mean you have to purchase home insurance from your lender. Shopping around and comparing home insurance providers can clue you into which policies offer great value and coverage. 

When should I buy home insurance?

When buying a new home, it's generally wise to have a building insurance policy in place from when you sign the sale contract and pay the home loan deposit. At this stage, you've legally committed to buy the property, though the exact rules vary from state to state. 

Generally, you can organise to get a coverage note or statement of insurance from your insurance company. Doing this provides proof of coverage until the settlement date, when your actual policy kicks in.

In most instances, if insurance is required as part of your mortgage contract, a copy of the cover note will need to be sent to your lender in order for them to release the funds for settlement.

You should also get your contents insurance organised before you start moving your things to your new house, as some contents policies include damage or loss of belongings while in transit.

Collage of hands shaking over an insured house.

How much does home insurance cost? 

In 2023, Mozo found the average home insurance cost to be $1,460 per year. However, this varied wildly depending on the policyholder. 

The cost of your home insurance policy depends on a number of factors. These factors establish your risk profile. Just like a home loan lender will slap a risky borrower with high interest rates and fees, an insurance provider sticks risky policyholders with higher premiums. 

Some factors affecting your premium include your home's:

  • Location
  • Condition
  • Age
  • Building material
  • Security features.

Different home insurance providers will also have different comfort levels when it comes to risk exposure. This is why it's important to get home insurance quotes. One provider might offer you more coverage for a lower premium. It's about value, not just price!

Can you get cheap home insurance?

Like all financial products, even cheap home insurance has drawbacks to consider. For example, cheap or bare minimum coverage may not give you adequate protection. If the coverage isn't enough, then the premium is hardly worth the money – even if it is cheap.

Instead, focus on finding good valueYou can do this by comparing home insurance quotes. In the meantime, you can also try these strategies for lowering your home insurance premium.

  • Look for discounts. Some insurance companies have loyalty, multi-policy, online sign-up, or no-claims discounts. See which ones you may be eligible for.
  • Opt for annual premiums. Monthly premiums may be more expensive than annual premiums.
  • Increase your excess. Raise the level of excess you are willing to pay upfront if you need to make a claim. Generally speaking, the higher your excess, the lower your insurance premium.
  • Reduce your risk. Keep your gutters clean, install locks on doors and windows, or invest in a security alert system. Even a home renovation to replace old roofing material can sometimes have an effect. 

How much should I insure my home for? 

The market value of the property and the cost to rebuild it are not the same thing. A home's value is in the land, whereas building insurance covers the cost for the raw materials, labour, and design work required to completely rebuild a house in the event of total disaster.

There are two methods insurance providers will use to estimate how much cover you need:

  • Cost per square metre. This method provides a rough guide based on the size of the house and the materials used.
  • Elemental estimating. Assess in detail the different elements of the building to calculate rebuilding costs from the ground up, using local wage and material rates and other construction data.

Underinsurance is a problem in many parts of Australia. If you are buying in a high-risk bushfire or flood-prone area, it will be important you get an accurate estimate for your building insurance to ensure you are covered in the event of a disaster.

Think about how much the house will cost to rebuild in current market conditions, including redesign costs and materials, and adjust your sum insured to cover this amount.

Here's our home insurance checklist for your property to get your started. 

Bamboozled by all the home insurance jargon? Read our jargon busting guide.

First home insurance FAQs

Is home insurance mandatory in Australia?

It is not a legal requirement to have a home insurance policy in place for your home in Australia, whether that’s building or contents insurance. 

However, most home loan lenders will require you to have a policy in place before the loan becomes unconditional. This is to reduce your perceived financial risk as a borrower, because you theoretically won’t have to pay out of pocket for any household damages such as flooding.

What does home insurance cover?

Home insurance is an umbrella term for a few kinds of policies: building, and contents insurance. 

Building insurance covers unexpected damages to the building itself. Contents insurance only covers your household belongings against damage, making it ideal for renters.

How is home insurance calculated?

Your home insurance premium is calculated by your provider based on numerous factors, which creates your ‘risk profile’. The riskier you seem, the higher your premium (in general). Factors that influence your risk profile include where you live, the amount and type of cover you require, relevant claim history, and compulsory government charges such as stamp duty and GST.

How long do home insurance claims take?

According to the General Insurance Code of Practice, home insurance claims should be answered within 10 days. This means the provider will let you know whether your claim has been accepted or denied based on the information you supplied them.

In some extreme cases, such as natural disasters, providers may take a little longer to respond to your claim. This is because a large volume of claims would be coming through, which would delay processing time.

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Evlin DuBose
Evlin DuBose
RG146
Senior Money Writer

Evlin, RG146 Generic Knowledge certified and a UTS Communications graduate, is a leading voice in finance news. As Mozo's go-to writer for RBA and interest rates, her work regularly features in Google's Top Stories and major publications like News.com.au.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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