Are you guilty of opting for an insurance policy with less coverage for a lower premium to save some cash each month? Or, maybe you’re a renter, in a *reasonably* safe neighbourhood, so decided to skimp on contents insurance. Don’t worry- you’re not alone.
Underinsurance is a widespread issue across Australia- with many being without adequate cover, often unknowingly. Given that the purpose of insurance is to provide a level of financial protection for ourselves and our families, the issue of underinsurance is a pretty big deal. It can cause a bad situation to spiral into disaster.
Luckily, knowing how underinsurance occurs, the risks involved and how to reduce them can help you get adequate cover in place to protect your pocket.
How does underinsurance happen?
Whether it’s home, business, vehicle or otherwise, your current policies may be inadequate for your needs.
The Insurance Council of Australia (ICA) estimates that 23% of Australian households do not have building or contents insurance, meaning that a whopping 1.8 million households are not protected. Whether these households are certain that ‘it’ll never happen to me’, or if the deficit is accidental, losses endured by underinsurance can be devastating.
Here are some ways you can wind up underinsured:
- Miscalculating the value of your insured item, such as your home and possessions.
- Not accounting for things like debris removal and labour costs.
- Lowering your premiums without careful consideration.
- Due to inflation, increased repair costs, or increased prices due to high demand for construction services after a major event, such as bushfires.
- Believing that you are already covered when that is not the case. For instance, a renter assuming contents insurance is paid for by the landlord.
What are the implications of underinsurance?
Underinsurance comes to head when a policy’s level of cover is less than a claim’s potential total value. Being underinsured can mean your insurer decides to pay only a proportion of the sum you’re claiming for. The difference between the level of cover and the value of the claim means that you could be out of pocket from the start. If you’re underinsured, the insurer can apply the average clause. Put simply, if the insurer discovers you have taken out inadequate insurance, it can reduce your settlement by the same percentage the asset is underinsured. The remaining costs will be left down to you.
So, if you’re taking a risk by leaving yourself underinsured just to save a few pennies, you might want to consider how you’d fork out the added costs should you need to make a claim. Although it can be a gloomy topic to think about, accepting that life is unpredictable will help equip us for any curveballs thrown our way.
How to avoid underinsurance
So, what do you need to do to avoid underinsurance? Here are some useful tips to save yourself the unnecessary trouble of being underinsured!
- Get an expert valuation: By consulting with professionals, they can help you make accurate and regular valuations.
- Take care when using online calculators to value your property and assets. Some of these can be inaccurate and may not include unique features which could impact the valuation.
- Contents valuation: Your contents should be insured for their new replacement value, not the price paid.
- Understand your policy details: Make sure you’re clear on the details of your insurance policies. This includes definitions and any exclusions or limits that may exist.
- Regular communication with your insurer: Let your insurer or broker know when you make changes to your home, business or assets of value. Failing to do this could result in serious underinsurance issues. · Work with an experienced insurance broker: One of the most effective ways to avoid underinsurance is to work with a qualified, expert broker. They can help you determine the best cover for you and avoid the stress of underinsurance.
We can find the right insurance cover for you
At Managed Insurance Solutions, we know first-hand how underinsurance can be disastrous for homeowners and business owners. Having adequate insurance is one of the most important cost-saving measures you can take. Our expert brokers can help to make sure you’ve got the best solution available. We can help you calculate the value of your assets and guide you through the difficult times. Contact us today to find out more