Having insufficient home insurance is a huge problem for home owners in Australia. Under-insurance is where the amount you are insured for is insufficient to cover the damage or economic loss sustained when you make a claim on your insurance policy. The Insurance Council of Australia estimates that more than 40% of households fail to correctly assess the value of their home and contents, so there’s a real chance you could be under-insured.
This problem was highlighted by the 2003 Canberra bushfires, which destroyed 488 homes and revealed their owners were, on average, underinsured by 27 to 40 per cent. It is often difficult for individuals to estimate the necessary funds required to rebuild their home should it be destroyed, a fact which is recognized by the insurance industry.
Consequently the industry has taken steps to improve its practices in this area. For example ‘total replacement’ policies are now available which pay rebuilding costs in full rather than a ‘sum insured’. Similarly, some insurers have introduced ‘extended replacement’ policies which pay 25-30% above the sum insured.
Check your home insurance policy
You should read your policy documents carefully to make sure you have adequate home insurance cover. In addition it is recommended that to avoid under-insurance you re-evaluate your home and contents at the renewal of your policy. Think about what you bought during the year, did you make any improvements to your home during the year.
Look around your home and carefully consider how much it would cost to replace everything in it. It may be a tedious process but you will be thankful you took the time to do this should the unfortunate incidence occur and you are faced with the loss of your home and all its contents. Review your home insurance every year and you’ll have peace of mind, knowing that you are completely covered