The first step in understanding what home contents policies cover is knowing what contents insurance is. Generally speaking, contents insurance covers household items belonging to you and your household and may include things such as sporting items and items not permanently attached to the building. Some policies may require you to take out additional coverage for things like jewellery, cameras and mobile phones. There are also different needs for different types of people who take out contents insurance including property investors, tenants and owner occupiers.
Firstly, an investor should know whether or not the building falls under a strata agreement. If so, having an understanding of what their strata insurance covers is essential. In many cases, the contents of the property such as internal blinds, floating floors, carpets and the paint inside the unit or property may not be covered. Dependent upon which state the property is located, strata insurance will generally only provide coverage for the building, common areas and shared or common contents. Property investors should take out landlord insurance cover when renting out their property to tenants. Accidental loss or damage to contents are more likely to be covered by this type of insurance. Fire, flood or storm coverage and damage to items such as carpets, blinds, curtains, light fittings and loss of rent if the property is unable to be occupied are all areas of coverage that an investor should look to be included within their landlord policy.
Coverage for an owner occupier generally includes more contents that require coverage than that of a landlord or even a tenant contents policy. Larger items like furniture, furnishings, electronics and items which could hold high value such as jewellery, artwork or collections are all included. Most policies will include coverage limits for higher value items which is listed as part of the Product Disclosure Statement (PDS). If an owner requires a higher level of coverage for a particular item or items, this can be discussed with the insurer. Coverage for items such as blinds, carpets, light fittings and other items not permanently fixed to the property are also included within the contents insurance for a home owner.
The most important factor for a tenant to understand is that their personal contents will not be covered by the landlord’s contents insurance. The tenant will need to have their own contents cover to be insured for loss or theft. It will generally cover the tenant’s belongings for larger items such as furniture and often overlook items such as kitchen utensils, appliances, linen and electrical devices. It is often difficult to estimate the dollar amount that would be required to replace all of these items in the event of theft or damage occurring to the property. According to The Australian and New Zealand Institute of Insurance & Finance, even someone who moves straight out of their parent’s home will have an average contents value of $15,000.
What general risks are covered?
General risks covered under a contents policy are outlined below:
Theft: It’s important to check the limits within your policy for items such as money when theft is the cause of loss. Also check the PDS for details around whether the theft has to be classified as forcible and violent to be covered. Most insurers will require evidence of the theft which will also be outlined within the PDS alongside any other conditions and exclusions for coverage.
Earthquake: Most policies will provide coverage for this risk. Again, there may be limitations within the PDS such as time limits on landslides that occur as a result of the earthquake (usually 72 hours). It should also be noted that there is generally an additional excess that is applied to claims related to earthquakes.
Electric motor burnout: There will often be different limits dependent on the insurer and policy type for coverage of motor burnout, usually related to limits on the age of the motor. Some insurers cover the spoilage of food should a fridge or freezer suffer motor burnout. Your PDS will outline what is covered specifically under your policy.
Escape of liquid: This risk is one that will vary in coverage from insurer to insurer. In some cases, the insurer will include the cost of searching for the source of the leak, others won’t. Common exclusions are repair or replacement of the defective part or parts, gradual leaks and showers without proper waterproofing. Your PDS will outline what is covered in your current or potential policy.
Fire: Fire is considered to be burning of visible flames to an item that is not intended for that purpose. Most insurers will not provide coverage for bushfires in the first 48 hours after taking out the policy. Some common exclusions include sparking, scorching, melting, or where there is no evidence of flames and the application of heat to any part of the insured property.
Storm, rainwater and wind: Storm coverage will generally include loss or damage caused by violent wind, cyclones or tornadoes that may be accompanied by rain, hail or snow. It is important to check the coverage that your insurer and policy include. Common exclusions are damage to trees, plants and shrubs and damage to retaining walls.