When you buy a home and contents insurance policy, your insurer will take your individual circumstances, your budget and a range of additional factors into consideration when calculating your monthly premium. The below items can all affect your final premium:
- The sum insured. The maximum amount you can claim on your home and contents insurance is commonly referred to as “sum insured”. The larger the sum insured, the higher the premium you pay. However, if you decide to double your sum insured, the amount of your premium won’t necessarily grow twofold. It’s important to insure your home for an amount that exceeds how much it would cost to replace – even in the event of accidental damage or a natural disaster.
- Estimate value of your home and contents. When you’re insuring your home, you’ll need to calculate the replacement value of the whole structure and associated outbuildings as accurately as possible. You’ll also need to do the same for your contents/belongings residing at your home. If you own items that are particularly precious, you might consider taking out additional valuables cover. There is a variety of online calculators offered by banks and insurance companies that you can use to crunch the numbers.
- Excess amount. Excess refers to the sum you have to pay when you make a claim on your policy. Most insurance policies have either standard or voluntary excess. A standard excess normally applies to every claim, but you can choose the amount you’ll pay as a voluntary excess, which may or may not reduce your premium.
- Multiple excesses. While some excesses will apply whenever you make a claim, others will depend on the circumstances of your claim; e.g. young drivers who have an accident could be eligible for age excess along with standard excess. Your certificate of insurance usually lists the types of excess that you have to pay when you make a claim.
- Home security. Your suburb’s susceptibility to natural events such as floods, cyclones or bushfires comes into the risk factor assessment; so does its crime rate. The higher the risk perceived by your insurance company, the more your premium works out to be.
- Age and structure of your property. In order to estimate the likelihood of your home withstanding serious damage, your insurer will look at how old your house is, what materials it is made from and the sturdiness of its overall construction.
- The oldest person residing at the property. When you are buying a home and contents policy, keep in mind that insurers see older people as carrying less potential risk for a range of events. Generally, a couple in their 40s or 50s is considered less likely to claim than a pair of 20-year olds.
- Median suburb price. As they say, location is everything. Proximity to CBD or major shopping centres drives real estate prices in the area, with those statistics having a direct effect on your insurance premium.
- Natural hazard risk. This is considered to be a major factor if your house or apartment building falls into bushfire or flood zone, or is located in a subsidence (land associated with erosion and sinkholes) prone area.
- Changes in the insurance market. Although these can be out of your control as a primary policy holder, insurance companies will typically communicate any forthcoming changes to you.
When you buy home and contents insurance in Australia, your insurer is required by law to supply a key facts sheet (KFS) outlining the events that your policy does and does not cover. Along with the KFS, you should thoroughly read through the product disclosure statement (PDS), which lists your policy’s terms and conditions.
If you have any questions for your insurer, don’t shy away from asking them. After all, it makes more sense to pay a more expensive premium than you’ve originally projected than risk underinsurance.