What types of insurance should you consider when buying a home?

What types of insurance should you consider?

The necessary

Building insurance

Building insurance (a.k.a. home owner’s insurance) covers you for the cost of repairing or rebuilding your live-in home if it is damaged by fire, flood, or storm damage. It covers the main structure as well as permanent fixtures and fittings (think kitchen cabinets, plumbing, and carpet) and other buildings on your property (such as garages and garden sheds). Depending on the policy, it may also cover any legal liability caused to someone injured whilst on your property.

Who needs building insurance?

Most lenders will require you to have building insurance before you settle your home loan. This is because they want to protect the property so that it can cover the cost of your loan should the need arise. So, if you’re buying a property you should factor the cost of building insurance into your budget.

What if I’m buying a property in a strata title?

The exception to this is if you’re buying a property in a strata title. In most strata schemes the building(s) and common property are covered under the insurance that the Owners Corporation has organised. The cost of the insurance premium is then shared among all of the owners through strata fees and levies. This means you won’t need to organise your own building insurance, instead you’ll likely just need to provide a certificate of currency to your lender (so they know your property is insured).

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Whilst this isn’t a type of policy, it definitely falls under the ‘necessary’ category. It pays to know exactly what you’re covered for and for how much. For example, some insurance policies cover flood damage, others don’t. Some have a maximum cover amount for personal items like jewellery. Don’t get caught out - ask your insurer about specific scenarios that are relevant to you.

The optional

Contents insurance

As the name suggests, contents insurance covers the contents of your home in the event they are lost, stolen, or damaged. Things like furniture, clothes, jewellery, and electronics can be covered by contents insurance. Some policies will also provide cover for your contents when you take them outside of your home (usually for an additional premium).

Who needs contents insurance?

Lenders don’t require you to have contents insurance, but it could be handy to have particularly if you have some pricey items in your house. Anyone can get contents insurance, whether you live in a home or unit and whether you own your property or rent.

Home and contents insurance

Home and contents insurance is just a combination of building and contents insurance into one policy, so it covers both your property and belongings. Combining the two policies into one agreement means you may only have to pay one singular insurance premium, and depending on your insurer, may also mean that you are entitles to a discounted rate.

Landlord insurance

Landlord insurance provides cover for landlords who own an investment property. It covers your investment property as well as fixtures and fittings, for loss or damage caused by tenants and other unforeseen events. Depending on the policy, it may also cover you for liability, loss of rent if the home is unable to be lived in or your tenant’s default. This one is a good idea if you’re looking at buying an investment property.

Optional extra coverage

Some policies come with optional extras to help customise your cover to better fit your needs. It provides the option to add extra coverage for an additional amount if required. Whilst most top policies include these features as standard it pays to look out for where full insurance is lacking and what options are available and at what cost.

Life insurance

This one might seem odd to include here but when taking out a home loan, you might want to consider how your family will be able to pay for your home loan if you’re no longer around. It’s not a pleasant thing to have to ponder, but taking out a life insurance policy to cover your home loan in the unfortunate event of your death could protect your loved ones from financial hardship.

Lenders’ Mortgage Insurance (LMI)

You’ll typically only need Lenders’ Mortgage Insurance (LMI) if you want to borrow more than 80% of your property’s value (unless your property is considered high density - see below). LMI is an insurance taken out by your lender to protect them in the event that you can’t repay your home loan, and the cost is passed to you, the buyer. If you want to avoid paying LMI you’ll need to save up a deposit of at least 20%.

High density properties may have a different requirement's surrounding LMI. So be sure to reach out to the team at Tiimely Home for any clarification of your dream home!