Did you know that many Australians are underinsured? What does this mean exactly? Well, if the total amount you have insured your home and contents for is less than it would cost to rebuild or replace the contents of your home, you are underinsured.
If you fall into this category (we’ll look at how to find out shortly), you could have a serious problem if your home and/or contents were to be damaged or destroyed by, for example, a fire or storm.
Why? Because being underinsured could leave you out of pocket by a potentially eye-watering amount if the worst were to happen. And despite being known affectionately as ‘the lucky country’, Australia has more than its fair share of bushfires, storms and floods.
As you may know, home and contents insurance provide for settlement on a “replacement” or “reinstatement” basis which places an obligation on you to ensure that sums insured and values declared are sufficiently adjusted/increased over time to adequately cover you in the event of a loss.
This article looks at how people run the risk of being underinsured, how to find out if you’re one of them, and what to do about it if you are.
How do homeowners become underinsured?
There are a number of reasons a homeowner might be underinsured. Perhaps the most common stems from relying on guesswork to calculate the cost of rebuilding a home and/or replacing its contents.
But even if you have an unusually accurate idea of how much such things cost, it’s all too easy to underestimate just how much stuff you actually own. Have you included the contents of your garden shed, for example? Many people have lawnmowers and tools that run into the thousands of dollars.
What about your wardrobe? You might not want to think about how much you spend on things like shoes and handbags, but not doing so could easily leave you without sufficient insurance cover to replace such precious items.
Don’t forget the reno!
One reason which often applies to people who’ve owned their home for a while is a failure to account for home improvements and upgrades. Had a new kitchen fitted? Renovated your bathroom? If you haven’t beefed up your insurance accordingly, you could be left short in a worst-case scenario.
And of course, there will always be those who want to save a buck or two on their premiums by deliberately underestimating the value or their home and its contents. But this is clearly a false economy because, as we’ve seen, should disaster strike and you’re underinsured, you’ll be paying the gap out of your own pocket.
How to ensure you're insured for the right amount
Building insurance
It’s important to bear in mind that the amount you paid to construct your home is not necessarily the amount it would cost to rebuild it over time.
That figure depends on a range of factors such as your home’s floor area or size, design, fixtures, quality of materials, and land slope. Structures like a pool or granny flat should also be included in your calculations but the value of the land should not as building insurance is designed to help ensure that you receive adequate coverage to replace or reinstate your home.
To get an estimate of how much it would cost to rebuild your home, we recommend using an online building insurance calculator1.
Contents insurance
The amount of home contents insurance you need will depend on what you own. It can be overwhelming to think about everything that’s in your home, so it’s a good idea to break it down into a room-by-room list.
Make sure you include furnishings, curtains, carpets, white goods, clothing, electronics, and jewellery. And like we said above, don’t forget about what’s stored in the garden shed!
To get an estimate of how much it would cost to replace your contents, we recommend using an online contents insurance calculator1.
Great Southern Bank insurance
At the end of the day, the level of home and/or contents insurance you need depends on your individual circumstances, but you should regularly review your sums insured to ensure that they accurately reflect your estimated replacement (new for old) or reinstatement costs, including any additional costs that may be required to replace damaged property.
In addition to having an accurate estimate of the dollar figure insured, it’s crucial to understand what your policy does and doesn’t cover and seek further information from a professional advisor if you’re unsure.
Great Southern Bank has insurance to cover most eventualities. Why not take a look at your options today?
Important Information
Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959 AFSL 238317 arranges this insurance as agent for the insurer Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL No 234708 (Allianz). Great Southern Bank does not guarantee or otherwise support this insurance product. Great Southern Bank does not provide any advice based on any consideration of your objectives, financial situation, or needs. Terms, conditions, limits, exclusions and underwriting criteria apply. This is general information and does not take into account your objectives, financial situation or needs. Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. Before making a decision, please consider the Product Disclosure Statement. The relevant Target Market Determination is available here. If you purchase this insurance, Great Southern Bank will receive a commission that is a percentage of the premium. Full details of the commission are set out in the Financial Services Guide. Ask us for more details before we provide you with services.
1 This calculator is provided by a third-party source not affiliated with us or the insurer and provided on a complimentary basis only. Neither we nor the insurer claim any responsibility for any reliance on the calculator. It is your responsibility to ensure that sums calculated are adequate for your coverage needs.