Bushfire season has arrived: Here’s what you need to know about insuring your home

author-avatar By on November 29,2019
Bushfire season has arrived: Here’s what you need to know about insuring your home

Photo by Andrew Gaines on Unsplash

As we head into the warmer months, catastrophic bushfires are raging in many parts of Australia, claiming hundreds of homes. At the time of writing, the damage bill has hit $145 million, with over 1,300 bushfire-related claims for the November disasters.

What’s in this guide?

For many of those affected, their insurance policy will cover the damage. But others may be in for a shock. Recent research from MCG Quantity Surveyors found many property owners could have their homes underinsured by as much as 66%, which would be devastating in the event of a claim.

With our bushfire seasons expected to get longer and more intense, experts are urging the public to be prepared. One way to do that is by making sure your home is insured for the worst-case scenario. Bushfire insurance is as mundane as it is complicated, but the difference it makes when disaster hits cannot be understated.

Do I need insurance for bushfires?

As with any insurance decision, that’s entirely up to you. If you live in an inner-city apartment in a jungle of the concrete variety, ensuring your home is covered for bushfires may not be as critical as it is for someone whose property is surrounded by dry bushland.

However, it’s important to keep in mind that we’re beginning to see bushfires in more areas than we have before, and dry and gusty weather conditions could mean your property is at a greater risk than it was previously.

If you already have home insurance, you’re likely already covered for a bushfire. Most home and contents insurance policies will include cover for fires as a standard, and bushfires and grass fires are normally included as part of this.

Make sure you check with your insurer and read the product disclosure statement (PDS) to ensure you’re covered.

What level of cover do I need for bushfires?

Again, this is up to you. However, if you’re after the kind of coverage that will allow you to fully rebuild your property if your home is completely destroyed, you’ll need to be adequately covered. You may also want to consider taking out car insurance if you haven’t already, to protect your vehicle if a bushfire destroys it.

It’s worth noting that if your home has been destroyed by bushfire, you will likely need to rebuild it to a higher specification to meet bushfire regulations. This was the case after the devastating Black Saturday fires destroyed thousands of homes in Victoria, prompting the government to update the national building code to make homes safer.

There are two kinds of home insurance: total replacement cover, and sum-insured cover.

Total insurance cover

As you may have already guessed by the name, total replacement cover will cover everything. Total replacement cover is home insurance that will cover the cost of rebuilding your home to the state it was in before the fire. The insurer will either rebuild your home to its previous state or cover the costs needed to rebuild it.

Total replacement cover closes the gap between the amount your home is insured for, and the cost it will take to repair or rebuild it, reducing the risk of under-insurance.

This type of insurance often attracts a higher premium as it provides a very high level of protection. Fewer insurers offer this level of cover.

Sum-insured cover

Sum-insured cover allows you to nominate how much you think it will cost to rebuild your home. So for example, you think your home will cost $800,000 to rebuild from scratch, you would insure it for $800,000. If your home is completely destroyed in a bushfire, your insurer will pay you a benefit up to that set limit of $800,000.

This option obviously requires you to have an accurate knowledge of how much it will cost to rebuild your home, otherwise you risk being underinsured. For example, you’re insured for $800,000 but it actually costs $1,200,000 to rebuild. If that happens, you’re left $400,000 out of pocket – funds you would have to come up with yourself.

As you can see, this option can be riskier as the responsibility lies with you to decide how much your home will cost to rebuild. Get it wrong, and you could be left financially crippled.

How much does bushfire insurance cost?

Many people make the mistake of assuming the cost of insuring the property will be the same as what you paid for the house, but this isn’t the case.

Insurers take many things into consideration, like the cost of building materials, the cost of labour, site clearance, waste disposal, architects’ fees, the cost of getting council approval, to name a few. Properties in bushfire-prone areas may also be subject to more stringent building standards when rebuilding.

The cost of bushfire insurance will differ depending on a few things, including:

  • Where you live: If you live in a bushfire-prone area, you can expect to pay more for insurance than those that don’t.
  • The value of your home: The more expensive your home will be to replace, the more you can expect to pay in insurance.
  • If you also insure your belongings: When taking out home insurance, you have the option to insure just the home, or the home and everything inside it. This is known as home and contents insurance, and it obviously will cost you more.
  • Your claims history: As a general rule, those who make more claims usually pay more for their insurance.
  • Your level of excess: Excess is the out-of-pocket expense you pay for every claim you make. You can often agree to pay a higher amount of excess in return for a lower premium.
  • If you choose optional extras cover: Many insurers will offer optional extras cover which comes at an additional cost. For example, you may opt for a ‘safety net home protection’ which covers you in the event the amount you’ve been insured for won’t cover the full costs to rebuild after a bushfire.

Can I get cover if I live in a bushfire-prone area?

Yes, living in a bushfire-prone area doesn’t exclude you from being able to take out insurance, though insurers will take this into account when calculating your premium because your home poses a bigger fire risk.

When to take out coverage for bushfires?

If the flames are licking at your back fence, it’s too late.

Most insurers impose short waiting periods on cover for natural disasters such as bushfires, usually between 48 and 72 hours. This is to prevent people from taking out insurance immediately before an anticipated bushfire and then making a claim. This embargoed period also helps keep premiums down.

In short, don’t wait for a bushfire to burn down your back fence before taking out insurance.

How can I avoid being under-insured for bushfires?

Imagine your home is destroyed by a bushfire. Imagine thinking you’re fully covered, because you’ve got home insurance. Then imagine discovering your claim will only cover part of the rebuilding costs – and you have to cough up the rest.

It’s called under-insurance and unfortunately, this is a situation many people find themselves in after a natural disaster.

When the Victorian Black Saturday bushfires destroyed more than 2,000 homes, an estimated 13% of property losses were not insured. Only 66% of property damage was insured after Cyclone Larry. After the Brisbane floods tore through the city, many people discovered they weren’t actually covered because insurance companies had different definitions of what constituted a flood.

Here are some ways to avoid being under-insured:

Factor in national building code regulations

Changes to national building code regulations mean it may cost more to rebuild your house to get it up to a higher specification to meet the new guidelines.

Opt for total replacement cover

To be on the safe side, choose total replacement cover over sum-insured cover. That way, you know you’ll be covered for the entire amount it will cost to rebuild.

Keep up with your home’s value

Your insurance cover won’t automatically increase every single time your home goes up in value. That’s why you want to remain on the front foot and review your policy every year and adjust the amount you’re covered for.

Don’t cut corners to save on premiums

This is one time it pays not to be a tightarse. While it can be tempting to insure your home for less than what it’s worth in a bid to save a chunk of cash on your premiums, doing so can prove disastrous if your house burns down and you can only afford to rebuild half of it.

What won’t bushfire insurance cover me for?

There are a few situations where you won’t be covered, which include:

If the fire occurred during the embargo period

Within the first 48-72 hours of taking out an insurance policy, you won’t be covered at all. Sometimes insurers will place an embargo on new policies in areas that are currently being affected by bushfires. If they are still selling policies, some insurers may have a no-claims period.

No flames, no claim

Even if your home was damaged by smoke or soot from a nearby fire, if there was no flame there was no fire. Unless there was a flame present, you also won’t be covered for scorching or burn marks.

Savings.com.au’s two cents

There’s a right time to save money and there are times when it’s okay to loosen the purse strings a little.

Making sure your home is adequately insured for a bushfire falls under the latter, particularly if you live somewhere surrounded by bushland.

Skimping on insurance now may save you money in the short-term, but will cost you dearly if the unthinkable happens.

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Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

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