How much is your insurance really worth?

Insurance. That dreaded nine letter word. We know we should have it but each year when the renewal notice comes around, there is that thought playing in the back of your head – I’ve been paying for insurance for so long and never had to use it, so do I really need it?

This past summer has been a reminder of the destruction that the full force of mother nature can leave – many Canberrans were down on the south coast when the bushfires came through, some returned to a holiday home burnt to the ground with no insurance for a rebuild. For others, Canberra’s freak hail storm wrote off an estimated 30,000 vehicles leaving those with the unforeseen expense of purchasing another car. Even if you haven’t been in the devastation areas, something as small as an electric blanket catching alight or a wiring fault could have a severe impact on your livelihood – how can you be sure that you are adequately covered?

After the bushfires impacted Canberra in 2003, up to 87 per cent of properties were underinsured. It isn’t until disaster strikes that you realise what your insurance cover is actually worth.

According to Canstar, 29% of homeowners do not have any form of contents insurance and 1.8 million Australian households don’t have any home insurance at all. There are two main reasons why under-insurance is common in Australia. Firstly, those who choose to insure their home and contents, take out insurance when they first purchase a property and forget to update their policy with the purchase of new assets (furniture, whitegoods, electronics etc.) or when modifications are made (kitchen/bathroom renovations). Secondly, when the insurance company asks, ‘how much is the value of your home and contents,’ many don’t have the knowledge to provide an accurate figure and just ‘guesstimate’ the value.

So how do you determine how much cover will be adequate?

FOR HOMES

If you have an owner-occupied house, you will need building and contents insurance. This will cover the cost of rebuilding your home, along with the contents inside the home.

You’ll then need to determine one of the following:

Total replacement cover:
Total replacement cover is more expensive than sum-insured cover but includes all the costs associated with rebuilding your home to the standard it was prior to an event.

Sum-insured cover:
Sum insured cover is more common and will cover you up to an agreed value. This option is where many people underestimate their property value and can get caught out.

Be careful to read your policy carefully and find out about any exclusions – for example storm damage doesn’t necessarily include flood damage. Be vigilant and ask about all inclusions and exclusions when setting up your policy.

Contents:

The figure for your contents should be based on how much it would cost to replace each item, not what it is currently worth. Also ensure that the value of your jewellery and artwork is ensured for its retail amount, many insurers provide limited cover for these valuables.

There are several websites which provide a list of contents to take into account when determining a figure with your insurance company. Spend time to sit down and create a list of everything you would need to start over and the current value if you had to purchase new.

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