Over the last few years, natural disasters in Victoria and Queensland have exposed a real concern about the number of people in Australia who have no property insurance or are underinsured.
Victorian Bushfire Reconstruction and Recovery Authority Chairman Christine Nixon has identified underinsurance as a key lesson in the wake of the February 7, 2009 Black Saturday disaster.
Speaking at the Financial Planning Association’s national conference in Melbourne in 2010, Ms Nixon said 25% of those affected by Black Saturday weren’t insured. Even where insurance was in place, 80% were underinsured, particularly small businesses.
Where home insurance was in place, it has greatly aided the recovery of people affected by the catastrophic fires, which killed 173 people and destroyed 2029 homes. “I do know how much easier it has made it for people,” she said.
Insurance Council studies in 2007 showed 23% of Australian households have no insurance at all, while up to 81% of those who are insured will be more than 10% shy of the true rebuilding costs.
Underinsurance could have great consequences, including:
- Ending up financially disadvantaged because although the event is claimable, you may not have enough cover to replace your home or belongings.
- Depending on the policy wording and the insurer, with a partial claim the insurer may only pay you a percentage of the loss if they find that the insured value did not accurately reflect the true value of the property.
- In the event that you have no insurance and the fire services are called to your home you may have to pay for the service as fire service levies form part of the insurance premium.
What can you do?
- Review the replacement value of your home and contents every 12 months, especially if you live in high-risk areas (cyclone, bushfire, hail).
- When carrying out renovations to your home you should not wait until your renewal date to increase the sum insured on your policy.
- Go through each room in your house and list what it would cost to replace each item. Use our home and contents valuer to make the process easier.
- Check the sum insured against rebuilding costs – particularly for policies of 10 or more years.
- Make sure your home is regularly maintained and repaired to prevent disasters such as fires and theft from occurring.
Finally, when thinking about underinsurance you should not only consider your property insurance but also personal insurance for you. Any insurance is better than none at all but think about what you are covering – don’t leave your family or yourself short. Complete a thorough insurance ‘health check’ with a qualified and professional adviser, who can help ensure you get the right cover.