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For most of us, our home is our biggest asset, but an ASIC investigation after the Canberra bushfires revealed that on average, bushfire victims were underinsured by 27% to 40%.

In the case of total loss, this level of underinsurance would devastate most families’ finances, of course. What many people don’t realize however, is that underinsurance is a problem for partial loss as well.

For example, if your house is insured for $250,000 and suffers $100,000 of fire or flood damage, you might think you’re covered, but if the insurer assesses that your house would cost $350,000 to replace, then they may have the right to claim that you are underinsured by 28% and pay only $72,000 of the $100,000 damage bill.
The law is clear. It is up to you to ensure you are properly covered.
This principal also applies to contents.
 

You are particularly likely to be underinsured if:

  • your policy is a few years old and you have not updated the sum insured.
  • you are renovating, increasing the value (and rebuilding cost) of your home.
  • you have calculated your level of cover by taking the purchase price of your property, and deducting the value of the land – this method generally produces a figure that is below the cost of rebuilding your home.

 

So what should you do?

  • Take the time to check your level of insurance each year when you pay your premium.
  • Online calculators are a practical way to work out how much to insure for, but the results can vary greatly from calculator to calculator. The best calculators ask 20 to 30 questions about your home and take all the features identified into account in providing an estimate.
  • Use the calculator provided by your insurer if they offer one, but it’s also a good idea to check with one or two others.
  • If you are at all unsure, phone your insurer and ask for their assistance. Now… before you need to make a claim… is the right time to check.

 

CAN’T AFFORD IT?

If you can’t afford to increase your cover, consider changing your excess and using the money saved on the premium, to increase the sum insured.

You may also be able to get more cover for the same premium by shopping around.

 

What are your thoughts?

Are you fully protected? Did we leave anything out? Is there anything else you’d like to know about home insurance? Do you have any other insurance questions?

Join the conversation — leave a comment below and let us know what you’re thoughts are.