Your guide to taking out home and contents insurance

Amanda Scully's family always had a fire plan.

But by the time the bushfire had ripped through their NSW town of Malua Bay on New Years Eve in 2019, plan A quickly became plan C.

"Our home was completely destroyed. There was nothing left," she says.

For Amanda, having insurance was worth it for the temporary accommodation cover alone.

"We had to live somewhere else in a lease of $550 a week. So to have to pay that on top of doing the rebuild, that would just be too much."

Home and contents insurance isn't just for homeowners or people living in bushfire-prone areas.

We asked three experts to explain the basics – Daniel Graham, an insurance expert with consumer advocacy group Choice, independent financial advisor Stephanie Tang-Bowman, and Lisa Kable from the Insurance Council of Australia.

I'm a new homeowner who hasn't needed home insurance before. What is it and what does it cover?

If you've never had home insurance before, the government's MoneySmart guide is a good one to bookmark.

"Home insurance covers the building itself and the fixtures, for example, plumbing and built-in cabinetry. It can also cover legal costs if someone is injured on your property," it explains.

Mr Graham says that if you own a home and have a mortgage, your bank will typically require you to have home insurance.

"[This is] in case it is damaged, and you need to pay out your loan," he says.

"If you're a renter, or you live in strata, you don't need to buy building cover, because you don't have to insure your building" as this will be included in your strata fees or the landlord's responsibility.

"Insurance basically ensures that you will have the money to rebuild or replace your home and belongings if the worst happens."

Mr Graham says home insurance covers your building against a list of what is known as insured events like fire, flood or impact damage (such as from a fallen tree).

MoneySmart's guide explains two main types of insurance, along with tips to help you choose the right policy for you.

How do I know if I need contents insurance?

What it is

Contents insurance is something both homeowners and renters may want to consider.

According to MoneySmart, this protects the things you value in your home, specifically "household items and personal belongings if they're damaged, lost or stolen". This can include furniture, appliances, laptops, clothes and tools.

Contents insurance covers your belongings for a list of insured events, which Mr Graham says vary between insurers.

"Ninety-nine per cent of the market covers the same dozen or so insured events. So that's theft, flood, fire, impact damage. Although [almost] every policy will cover these, different insurers will have different definitions of those events," he says.

Weighing up cost versus cover

As to whether you need it, financial adviser Ms Tang-Bowman has this advice.

"But obviously you need to also weigh that up against the costs of the premium."

Calculating the value of your belongings

Creating an inventory of your belongings and costing them can help you get a sense of how much insurance you might need. It'll also help you calculate your sum-insured, which is the maximum amount your insurance will pay out if you do lose everything.

"Are you a runner? How much would it cost to replace four pairs of runners? That could already be $1,000," says Ms Kable.

The overall value of your belongings can also influence the insurance available to you.

"Some insurers might only have, say a $50,000 sum-insured amount, whereas others will allow you to insure your contents for a lower amount," Mr Graham explains.

Finally, if you need both home and contents insurance, many insurance companies will offer a discount if the policies are bundled together.

How do I know if I live in a flood, fire or cyclone-prone area? And how might this impact any insurance I do take out?

MoneySmart recommends contacting your insurer as well as local council and emergency services to "ask them about flood mapping, historical flood records, and the Bushfire Attack Level (BAL) of your home. If you contact your council, ask them whether your house meets natural disaster standards".

While most insurers will include cover natural disasters like storm, fire and flood, some policies only offer these as add-ons. Others may have significant exclusions or may not cover all damage caused by these events, so if you are at risk, it's worth making sure you're covered properly.

What should I be looking for when reading policy fine print?

Temporary accommodation cover is something experts mentioned and it was the key takeaway from Amanda's experience too.

"You don't want to not be able to live in your house and also have to pay rent somewhere else," Ms Kable says.

Mr Graham recommends checking how you're covered for contents in the open air.

"If you have a backyard, and you've got a lot of furniture, or a trampoline or garden or things like that, it's worth having a look at your policy to see whether there are any limits or exclusions on that."

But Ms Kable says there's no straight answer when it comes to key inclusions in a policy.

"The thing with insurance is that you and I might live next door to each other on the same street in the same suburb, but your insurance policy and what you need could be absolutely different to what I need," she says. 

Once you've found a policy or policies you're interested in, she recommends reading the product disclosure statement (PDS) as "a necessity".

"The devil is in the detail … They're [PDS] not all legalese now, they're getting easier to read."

This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.