Underinsurance under the microscope
If your home was damaged or your possessions stolen, would the amount they are insured for completely cover your loss?
If you hesitated in answering, chances are you’re caught in the underinsurance trap – a situation facing thousands of individuals and businesses who have neglected to keep their insurance policies up-to-date.
Underinsurance is becoming increasingly prevalent in Australia and elsewhere around the world. It describes a situation where the amount an individual or business is insured for is less than the true replacement cost of their home, business or contents.
All too often it is in moments of tragedy – be it a house fire or burglary – when people make the discovery they are underinsured. By this time of course, it is far too late.
For many, underinsurance is a consequence of making simple "guesstimations" of their home and contents value – and guessing wrong. Failing to take into account the appreciation of assets is a prime example of how households can under appreciate their possessions.
Even issues like currency fluctuations can play a part, for example, if the Australian dollar falls, the replacement of imported goods becomes much dearer.
Underinsurance can also affect the value of your most valuable possession – your home.
Construction costs have increased considerably in most states over the past five years so the replacement cost of the family home can be significantly more than when it was first built.
In recent years the cost of building new homes in Queensland has exceeded 5% in a single year and in Western Australia reaching as high as a 16% increase.  Similar increases have been reported throughout the rest of Australia.
EBM Insurance Brokers General Manager Sharon Fox-Slater said these increases in construction costs, many of which are passed onto the consumer, can create a significant gap between sums insured and rebuilding costs.
“For home owners, establishing an insurance policy is something they can budget for and can give them a clear idea of what insurable events are covered and what are not,” said Ms Fox-Slater.
“But should a home owner not adequately insure their property and something happens, that's a risk that they cannot escape.  This applies even more so to landlords when insurance rental properties.  Many investors place greater importance on insuring their own home yet less on insuring their rental property.”
“The impact of underinsuring (or not insuring) a rental property can be devastating when there continues to be a mortgage to pay, no rental incoming to come in and lack of funds to rebuild.”
Article supplied by EBM Insurance Brokers.
Our advice about insurance is provided for your general information and does not take into account your individual needs.  You should read the Product Disclosure Statement and Policy Wording prior to making a decision, these can be obtained directly from EBM Insurance Brokers.
For more information about EBM’s range of landlord insurance products, call 1800 661 662 or visit www.rentcover.com.au