Review your insurance values carefully, to avoid underinsurance.
Whether it's home, contents, or life insurance, most Australians
have insufficient cover. A recent study by the Australian
Securities and Investments Commission (ASIC) found that 21-81% of
consumers were underinsured by 10% or more, in the event that they
had to rebuild their home. Because the responsibility of estimating
rebuilding costs rests with the homeowner, a correct estimate is
imperative, but can present challenges.
Online calculators are available to assist with making sure
you're home insurance is adequate. However, talk to a builder in
your area to check the calculation results are accurate. Be sure
you take into account the continuous rise in building costs, and
re-evaluate your insurance cover on an annual basis. The ASIC study
found that while the CPI increased 17% between March 2000 and March
2005, building costs rose by 33%.
Insufficient cover can creep in over time. So even if you
correctly estimate your cover in the first place and then annually
increase the sum insured, it can still lag the actual rise in
building costs. ASIC research found that while the CPI increased by
17% between March 2000 and March 2005, building costs in fact rose
But it's not just home insurance, where Australians have
insufficient cover. Contents cover often fails to recognise new
purchases made by a household, or keep up-to-date with replacement
costs. Underinsurance is also a problem in life insurance. A study
conducted for the Investment and Financial Services Association
found that 60% of Australian families with dependent children don't
have enough life insurance cover to look after their family for a
Understand your policy. Is your policy for a fixed sum-insured,
a sum-insured plus margin for increased costs, or a total
replacement policy? Which policy is right for you?
Four common reasons for under-insurance include:
- A gradual accumulation of possessions
- Not accounting for upgraded assets
- Lack of understanding of local risks
- Increased building costs, and
- Lack of understanding of policy types and exclusions.
Before you renew your insurance, review the replacement value of
your property and your contents and adjust your cover accordingly.
The best way to make an inventory of our contents, including
furniture, valuables, jewellery, computers, and electrical goods is
take a walk through each room at home, take photographs, and make a
list of your contents and their replacement value. Make sure you
are covered accordingly and take careful note of policy terms
concerning high value items and exclusions.
Has the cost of rebuilding your property changed, since your
built or purchased your house? Check online calculators, or ask a
builder for advice. Have you renovated or improved your property
since your policy was taken out? Adjust your insured value to
include the value of improvements.
Flood maps are available from most local councils that have
studied, analysed and modelled the risks by showing areas of
inundation for 1:100 year flood events. These maps highlight
geographic areas known as flood zones - those areas at greatest
risk of inundation.
Your insurer also has these maps and will calculate your
premiums accordingly. If your assets are at risk of flooding you
should consider a policy that covers all types of flood damage.