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So, what is under-insurance and how can you ensure you haven’t under-insured your home and contents?
A comprehensive home and contents insurance policy is a key step in receiving adequate financial support in the face of an unfortunate event occurring at your home.
But if your home and contents is under-insured, it means that while you have an insurance policy, your cover is inadequate. In the event of a claim, underinsurance may result in financial hardship as the claim would exceed the maximum amount that can be paid out by the insurance policy.
Your insurance provider relies on you to provide them with an accurate value of your home and contents. If you underestimate the value of your property and your possessions, your home and contents policy may be inadequate should you need to make a claim.
An under-insured property can leave you thousands of dollars out of pocket right when you need it the most.
If your home and contents are under-insured and you need to make a claim, your insurance payout will likely fall well short of the amount you need to repair your home or replace damaged or stolen items.
What’s more, there’s the added risk that your insurer may have the right to pay for only a part of any loss, because you’re insured for only part of what it’s worth. Sounds complicated?
Here’s how this scenario might play out: let’s say you insure your home for $200,000 but it would actually cost $400,000 to rebuild. If your home were to burn to the ground, your insurer may have the right to reduce your payout in proportion to the level of under-insurance. In this case your payout may only amount to $100,000 as the building was insured for 50% of what it really would cost to rebuild – well short of the funds required to re-build your $400,000 home.
Understanding the true value of your home and contents is the first step here. If you can, speak to a qualified builder about the likely actual cost to re-build your home.
You can also contact iSelect – our home and contents consultants to help you accurately assess the true re-build cost of your property. Ditto your contents. It can be hard and time-consuming to accurately estimate the replacement cost of everything you own – our expert home and contents advisors can help you calculate an accurate figure, as well as work out whether you need to itemise certain contents on your policy.
Don’t forget to evaluate your home and contents insurance regularly. Prices rise and the amount you insured your home and contents for 10 years ago would almost certainly be inadequate today.
Still can't quite work out whether you’re under-insured or not? Contact iSelect today. We can help you sift through the complicated stuff, compare home and contents insurance policies and find a policy that provides you with complete cover, at the right price based on your needs and circumstances.