When it comes to protecting your home, having insurance is important but having the right type and level of cover is just as important.
One of the most common areas of confusion for homeowners and landlords is the difference between building insurance and contents insurance. Assuming one policy covers everything, underestimating the value of your belongings or misunderstanding what is considered part of the building could leave you significantly out of pocket when you need to make a claim.
Here are some common misconceptions worth knowing before you discover them the hard way.
Misconception 1: "Building insurance covers everything inside my home"
Building insurance generally covers the physical structure of your property and certain fixtures and fittings. Depending on your policy, this can include things such as walls, roofs, floors, bathrooms, kitchens and built-in fixtures.
However, your personal belongings are generally considered **contents** rather than part of the building.
Furniture, clothing, electronics, jewellery, appliances and other personal possessions may require contents insurance.
The important thing to remember is that the exact definition of "building" and what is covered can vary between insurers and policies.
Misconception 2: "Contents insurance is only for renters"
Contents insurance isn't just for tenants.
Homeowners can also benefit from contents cover, particularly because replacing everything inside a home after a major event could be incredibly expensive.
Think about everything you own — furniture, TVs, computers, kitchen appliances, clothing, sporting equipment, tools and personal items. Individually, these items might not seem particularly valuable, but together they can add up to tens of thousands of dollars.
Misconception 3: "I'll just estimate how much my contents are worth"
One of the biggest mistakes homeowners make is underestimating the total value of their belongings.
It's easy to think, "My contents are probably worth around $50,000," without actually adding everything up.
Try walking through your home room by room and considering what it would cost to replace everything at today's prices. Don't forget garages, sheds, outdoor furniture, tools, home offices and other storage areas.
You may be surprised by the total.
Misconception 4: "My building is insured for what I paid for the property"
The market value of your property and the cost to rebuild it are two very different things.
Your property's market value includes factors such as the land, location and demand in the area. Building insurance, however, generally needs to account for the cost of rebuilding the physical structure.
Construction costs, demolition, debris removal, professional fees and other expenses can all affect the amount required to rebuild.
This is why choosing a building sum insured simply based on your property's purchase price can be risky.
Misconception 5: "My landlord's insurance covers my belongings"
If you're renting, your landlord will generally be responsible for insuring the building itself. However, that doesn't necessarily mean your personal belongings are covered.
If something happens to the property, your landlord's building insurance won't typically replace your furniture, clothing, electronics or other personal possessions.
Renters should consider whether contents insurance is appropriate for their circumstances.
Misconception 6: "If something is damaged, insurance will automatically pay for it"
Having insurance doesn't necessarily mean every type of damage or loss will be covered.
Policies can have exclusions, conditions, excesses, limits and specific requirements. Certain valuable items may also have individual limits unless they are specifically listed on the policy.
Before taking out or renewing a policy, it's worth understanding exactly what you're covered for — and just as importantly, what you're not.
Misconception 7: "I can set it and forget it"
Your insurance needs can change as your circumstances change.
Renovations, extensions, new furniture, expensive electronics, jewellery, home improvements or other major purchases can all affect the level of cover you need.
It's worth reviewing your policies regularly and updating your insurer when your circumstances change.
Protecting your biggest investment
Insurance can provide valuable protection, but the right level of cover starts with understanding what you're actually insuring.
Whether you're a homeowner, landlord or renter, don't assume that your building insurance and contents insurance are interchangeable — or that you automatically have enough cover.
A few minutes reviewing your policy today could potentially save you thousands of dollars when you need it most.
If you're unsure about your insurance requirements, speak with a qualified insurance professional or your insurer to understand the cover that's appropriate for your circumstances.
*This article is intended as general information only and does not constitute financial or insurance advice. Policy inclusions, exclusions and limits vary between insurers, so always check the terms and conditions of your individual policy.*