The dangers of underinsuring your home
Many Victorians do not have enough insurance cover, leaving them at risk of an unpleasant surprise.
The nasty thing about underinsurance is that it will emerge to surprise you when you need bad news the least, causing a major financial and emotional headache when you are already under great stress.
Yet it is relatively easy to avoid if you spend a few minutes once or twice a year ensuring that the insurance cover for your home is appropriate and up to date.
There are also strategies you can take to increase your insurance cover in a more affordable way if you need to do so, such as increasing the basic excess on your insurance policy.
As Bill Stronach, Technical Specialist RACV Property Claims, puts it, the cost difference between having low insurance and adequate insurance is not always great. “Increasing your sum insured – doubling your sum insured – it usually doesn’t double your premium,” he says.
The underinsurance of your home and contents is a big problem at any time but becomes an enormous one if you lose your home, such as in a fire or bushfire (what is called in insurance terms ‘a total loss’).
Most people understand that if you are underinsured it means you may not have enough insurance money to rebuild and replace back to the same standard you are at right now.
But it will also hamper your insurer’s ability to help you in the rebuild and replacement process, causing more stress and uncertainty for you and your family. In some cases it means you may be unable to rebuild your home at all.
The worst part of all this is that many don’t realise they are underinsured. They’ve taken out what was the appropriate level of home and contents insurance cover in the past, but have not regularly reviewed their level of cover since then.
But underinsurance happens over time. It happens because of renovations and improvements at your home or because of recent contents purchases, it happens because of changes in your lifestyle, it happens because of changes in the building regulations around you, and more.
If you don’t regularly review your home and contents cover – and it’s recommended you use the RACV insurance calculators as a start (racv.com.au/calculators) – there’s a good chance you could be underinsured.