Australia: Building Insurance

Overview

For most people, buying a home is the biggest financial investment they will ever make. When buying a home, you’re usually responsible for insuring it before you even move in. If you take out a mortgage to buy a property, your lender usually insists that your home (including most permanent structures on your property) has building insurance from the time you sign the contract and legally become the owner. Even when it isn’t required by a lender, you’d be extremely unwise not to have building insurance.

Building insurance usually includes loss or damage caused by aircraft impact, animals, earthquake, explosion, falling trees or aerials, fire, flood, malicious damage, oil leakage from central heating systems, riot, storm and lightning, subsidence or landslide, theft, vehicles, or water leakage from pipes or tanks, and may also include cover for temporary homelessness. Some insurance companies also provide optional cover to include trees and shrubs damaged maliciously or by storms. Building insurance must be renewed each year, and insurance companies are continually updating their policies, so you must ensure that a policy still provides the cover you require when you receive a renewal notice.

Lenders fix the initial level of cover when you first apply for a mortgage and usually offer to arrange the insurance for you, but you’re usually free to make your own arrangements. If you arrange your own building insurance, your lender will insist that the level of cover is sufficient. Many people take the easy option and arrange insurance through their mortgage lender, which is generally the most expensive option.

Most lenders provide index-linked building insurance, where premiums are linked to inflation and building costs (premiums are usually added to your monthly mortgage payments). It’s your responsibility, however, to ensure that your level of cover is adequate, particularly if you carry out improvements or extensions which substantially increase the value of your home. All lenders provide information and free advice. If your level of cover is too low, an insurance company is within its rights to reduce the amount it pays when a claim is made, in which case you may find that you cannot afford to have your house rebuilt or repaired should disaster strike.

The amount for which your home must be insured isn’t the current market value but the cost of rebuilding it if it’s totally destroyed. This varies according to the type of property and the area, and is calculated per $1,000 of insurance, e.g. from around $3 to $4 per $1,000 of cover (per year) in an inexpensive area to $10 or more per $1,000 in the most expensive high-risk areas. Therefore insurance on a property costing $150,000 to rebuild costs from around $450 to $1,500 per year. There’s usually no deduction for wear and tear, and the cost of redecoration is usually met in full. Building insurance doesn’t cover structural faults that existed when you took out the policy, which is why it’s important to have a full structural survey carried out when you buy a property.

Insurance for ‘non-standard’ homes such as those with thatched roofs or timber construction is usually higher. The highest level of cover usually includes damage to glass (e.g. windows and patio doors) and porcelain (e.g. baths, washbasins and WCs), although you may have to pay extra for accidental damage, e.g. when your son blasts a cricket ball through the patio window. Always ask your insurer what isn’t covered and what it costs to include it (if required).

© Survival Books Limited 2006

“Buying a Home in Australia & New Zealand” 1st Edition, Graeme Chesters.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying a Home in Australia & New Zealand” 1st edition, by Graeme Chesters.

For extensive information about buying a property in Australia & New Zealand, you can purchase this book at www.survivalbooks.net