Under-insurance is a chronic concern in Australia, and while you might be aware that your cover isn’t quite up to scratch, you could be horrified to know just how far short your policy may fall.
By: Bonnie Radcliffe, Feb 2020
Over the last three months, Australia has experienced extraordinary conditions. Natural disasters in the form of fires, floods and damaging storms have impacted parts of our country at an unprecedented frequency and scale.
According to the Insurance Council of Australia (ICA), four-in-five homeowners agree that their current level of insurance wouldn’t allow them to resume their normal standard of living if their property was damaged or destroyed. This is the unfortunate reality for many of those impacted by the disasters, with ICA revealing 80 per cent of homeowners don’t have adequate insurance.
Then there are the everyday items that we need to protect to ensure we can go about our daily lives. An unforeseen travel glitch, the loss or damage of portable property such as a laptop, bike or car, unexpected illness or a sick pet can all quickly snowball into financial and emotional stress.
To help you navigate the world of insurance, we’ve created a checklist of things to keep in mind:
Most of us are probably guilty of having no idea of the exact value of our home and its contents. A primary factor contributing to the under-insurance of Australians is our ‘set and forget mentality’; we organise our policies when we buy or move into our home, and then assume we’re adequately protected indefinitely.
While building insurance covers the cost of repairing damage to the structure of your property, contents insurance covers the cost of replacing the belongings in your home if they are damaged, stolen or destroyed.
As our life circumstances and assets change, our insurance policies should change too. For example, building an extension to your house, renovating the kitchen, updating home furnishings, or buying new technologies should all prompt an insurance review.
There’s a multitude of policies on the market, and some will be more suitable for your needs than others. There are three common types of home and contents insurance available: sum insured, safety net and total replacement policies.
A safety net policy can be a good option as it will compensate a specific percentage – up to 30 per cent – above the total sum insured and offer an increased level of protection, in case you haven’t captured everything in your initial insurance inventory. This option, however, comes at a premium.
There are countless online calculators available to ‘assist’ us in estimating our insurance requirements. Although entering a few details into an online tool seems like an easy way to work out what level of insurance we need, relying on these calculators may leave you under-insured.
Choice tested six different online insurance calculators to obtain the rebuilding cost for a home, and the results varied by as much as $71,500.
Use these calculators as a guide only and remember to do your own research.
Each policy will have a different set of terms, conditions and exclusions. Referring to the product disclosure statement (PDS) will help you to understand exactly what you’re covered for – and what you’re not.
Though specific details of policies vary greatly, there are some common exclusions to be wary of. For example, typical exclusions for home insurance policies include vacating your home for an extended time, existing damage, partaking in a home-swap, or failing to secure your property. Likewise, common travel exclusions are theft of unattended luggage, self-inflicted injury, or being under the influence of alcohol.
To further protect your valuable possessions, portable contents insurance offers a degree of cover for personal items that frequently leave your home with you, such as handbags, electronic devices, sunglasses and jewellery. Just like home and contents insurance, this type of insurance provides cover for theft, accidental loss or damage while you’re out and about.
Generally speaking, insurance premiums typically increase following natural disasters or a spike in specific claims, with this being something to keep in mind in the wake of Australia’s bushfires. The more regularly you assess your insurance policy, the less likely you are to be caught out having inadequate coverage.
Don’t set and forget when it comes to your insurance. Changing life circumstances and variables affect the insurance you need. While setting time aside to review your cover may seem like a hassle, it’s a hassle worth committing to.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of State Custodians. The above is general commentary only and is not advice tailored to any individual’s financial situation. We recommend seeking advice from a mortgage or finance professional before implementing changes relating to your finances.
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