A guide to insurance for first-time buyers

In the excitement of buying your first home, insurance probably isn’t the first thing on your mind. While you’d undoubtedly rather be deciding where to put your furniture and whether or not to turn the spare bedroom into a home office, having the right level of insurance is just as, if not more, important.

In this guide for first-time buyers, we break down why home insurance matters, the different types available, how to avoid being underinsured, and when to take it out to ensure you’re fully covered from the moment you need it.

The basics of home insurance

Although there are four main types of home insurance, first-time buyers generally only need to think about the first three (unless your first property is for ‘rentvestment’ purposes - i.e., to rent out while you continue to live in rented accommodation yourself).

Let’s take a look at them now.

Building insurance

Sometimes known as ‘home-only insurance’ or just ‘home insurance’, building insurance covers the physical structures that make up your home building. This includes the house itself, along with your garage, fences, paved driveways, and even fixtures like dishwashers, hot water systems and air conditioners.

Contents insurance

Contents insurance covers the items inside your home, like your furniture, appliances, and other belongings.

Home and contents insurance

While you’re perfectly entitled to take out building insurance and contents insurance separately, you may be able to get a better deal by taking them out together. For this reason, home and contents insurance tends to be the most popular choice for Australians insuring owner-occupier properties.

Landlord insurance

As the name suggests, landlord insurance is aimed at the owners of investment properties. It typically offers options relevant to landlord-specific issues such as tenant theft, rent default, and injury to tradespeople working on the insured property.

Why you need the right level of insurance as a first homeowner

When it comes to home insurance, having the right level of cover is just as important for first-time buyers as it is for those who have owned property for years. Why? Well, to put it simply, if the total amount you have insured your home for is less than it would cost to rebuild, you are underinsured.

Equally, if the total amount you’ve insured your home’s contents for is less than it would cost to replace them, you’re also underinsured.

And in a country with more than its fair share of bushfires, storms and floods, being underinsured could spell financial disaster if the worst were to happen.

How do people become underinsured?

Underinsurance is a bigger problem than you might think. In fact, the Australian Securities and Investments Commission (ASIC) has estimated that up to 80 per cent of homeowners are inadequately insured.

Why is this number so high? While there are a variety of reasons, perhaps the most common is simply people guessing how much it would cost to rebuild a home and/or replace its contents rather than getting a professional opinion or using online calculators like these:

• Home building value estimator
• Home contents value estimator

And of course, there will always be those who want to save a buck on their premiums by deliberately underestimating the value of their home and its contents. Perhaps needless to say, this quickly reveals itself to be a false economy should you need to make a claim.

Other reasons tend to apply more to people who have owned their home for a while, such as not updating their cover as the value of their property increases over time.

When to take out insurance when buying a house?

While the rules vary from state-to-state, it’s a wise move for buyers to consider getting insurance from the time the seller signs the contract, just to be on the safe side.

Let’s take a look at how it breaks down around the country.

Queensland

In Queensland, the buyer is typically responsible for a property from 5pm on the business day after both parties have signed the contract of sale. This is before settlement day.

This isn’t a hard and fast rule though, so it’s important to speak to your real estate agent or solicitor to find out exactly when you become responsible for any damage to the property.

New South Wales and Victoria

In New South Wales, the Conveyancing Act 1919 (NSW) states that the buyer becomes responsible for the property on settlement day. This being the case, any damage incurred before this date is technically the seller’s responsibility.

Having said this, your mortgage lender may expect you to take out insurance before settlement even though it isn’t a legal requirement.

The rules for Victoria are the same as for New South Wales.

Tasmania, ACT and South Australia

In Tasmania, ACT and South Australia, the buyer is typically responsible for any damage during the settlement period. For this reason, it’s especially important to get your home insurance sorted before the contract date.

Western Australia and the Northern Territory

In both Western Australia and the Northern Territory, the buyer is responsible for damage to the property from the time whichever of the following happens first:

• The buyer is entitled to or given possession of the property.
• The date the whole of the purchase price is paid.

How to avoid being underinsured

As we’ve seen, underinsurance is a major issue in Australia. To avoid being out of pocket in the event of a disaster, it’s important to accurately estimate the value of your home and its contents.

Whether or not you take out cover when you are legally required to or earlier comes down to how much risk you’re willing to take. In the grand scheme of things, the cost of a few extra weeks of home and contents insurance might be worth it for your peace of mind. Just remember to check what your policy does and doesn’t cover.

To get started with insuring your first home, check out Great Southern Bank’s Home and Contents Insurance today.