Start comparing home insurance policies and you’ll soon notice it’s more than just the price that differs.
Insurance cover for a fire can mean one thing to one provider but can have alternative caveats with another. It can make deciding which home insurance policy best covers your situation all the more difficult, or can catch you out when it’s time to make a claim.
“The language that is used by insurers is quite difficult for the average person to understand,” Kate Bower from Choice said. “There tends to be a lot of legal jargon and there can be quite significant differences between different brands.”
While there are numerous brands a home owner can purchase insurance from, there are only a handful of underwriters that support their policies, Sophie Walsh from Finder says.
“‘Underwriters’ is another jargony term, but essentially an underwriter is separate from the insurance brand you purchase from,” she said. “What they do is work out how an insurer prices a premium – all based on risk.
“There are many different brands you can buy home insurance from, but there are only a few people that actually look at the risk behind those insurance products.”
Because of this, Walsh said language used in insurance policies was relatively consistent across brands with the same underwriter, but it was the highly technical language where consumers would get stuck.
Home insurance providers are required by law to provide two documents to help consumers understand a policy before purchasing: a Product Disclosure Statement (PDS) and a Key Fact Sheet (KFS).
Utilising the KFS is the first step consumers should take to help compare insurance policies. They provide an outline of the events covered by the policy, the maximum level of cover, exclusions and inclusions, limits, and cooling off period – and it’s no more than a few pages long.
“To get an overview, use the Key Fact Sheet but before you purchase the product read through the PDS at least once–- that’s where all the details are that can catch you out,” Bower said.
Bower has seen PDS documents totalling tens of thousands of words, with the lengthiest being over 30,000. Add non-standardised terminology in the mix and it can fast become a slog to read through.
Both Bower and Walsh said while there was a standard list of events all home insurers cover, such as fire or theft, the inclusions and exclusions should be studied carefully by consumers as these could range from provider to provider.
Something that sounds as straight-forward as “escape of liquid” can come with very distinct stipulations.
“It can be quite specific. I know of one insurer that includes aquariums but not fish bowls. So even where you keep your fish can be quite a difference,” Bower said.
“It’s generally a leak but where it gets tricky is the types of leaks that are covered.
“Usually only sudden leaks are covered, no slow leaks that the insurer thinks you should reasonably be expected to know about and have done something about.”
Flood and bushfire cover is another tight spot. A Queensland Floods Commission of Inquiry was set up following the devastation of the 2011 Queensland floods, where many policyholders were caught out by the fine-print in their home insurance’s definition of a flood event. As a result, a standard definition of ‘floods’ was established.
“Often Australians can be caught out by big, catastrophic events and maybe they aren’t covered by what they thought they were,” Walsh said. “The inquiry and changes was to try and bring about a bit more clarity.”
“For somebody purchasing for the first time, they should be particularly aware if they live in a flood zone or a bushfire-prone area and that they read through the definition of those events and understand what will and won’t be covered,” Bower recommended.
Actions of the sea is another covered event that is more complex than it seems. It refers to high tides but can also include king tides or rough seas. However, despite being a similar type of event, tsunamis are usually covered separately.
“Most [flood cover] will cover you for storm damage like flash flooding as a result of a storm. However, when it comes to things like actions of the sea, which could be a large king tide that floods your house, you may not be covered for that.”
Once consumers have read the KFS and PDS, they can contact the insurance provider to gain specific information on their own personal situation so there are no uncertainties come claim time – especially once you factor in price.
“If it’s unclear, call them and ask why the policy is cheaper than others. You’ll soon find out there’s exclusions in there you might not have realised from reading the PDS.”