How to minimise your risk of underinsurance
Even if you have taken out a home and contents policy to protect your property and possessions, there’s a chance you may be dangerously underinsured.
Underinsurance occurs when, for whatever reason, the value of your insurance policy does not match the actual value of the items you’re insuring. When disaster strikes, this can leave you exposed as a home owner and puts your possessions at risk.
We’re going to look at the chief factors contributing to the underinsurance, and six simple things you can do as a home owner to make sure it doesn’t happen to you.
Why does underinsurance occur?
If you’re underinsured, it generally means you will have paid for a policy that doesn’t cover the full cost of potential loss or financial impact to yourself.
Common reasons include:
- Gradual accumulation of possessions – There’s every chance you own more possessions than you did when you first took out your policy, and if this is the case the value you’re insured for may not match the value of your home and contents.
- Increased building costs – The cost of permits and types of construction are forever changing, so you amount paid for your home to originally be constructed might not be indicative of what the same procedures would cost today.
- Not accounting for upgraded assets – If you’ve undergone renovations that have increased the value of your home or replaced belongings like furniture or appliances, the policy you have taken out might not represent its actual value.
How can I avoid underinsurance?
- Use an online home and contents insurance calculator to determine how much cover you may need, and whether the value in your policy is adequate.
- Carry out a room-by-room inventory. Not only will it give you a better sense of what your home and contents is worth, but it will assist you when making a claim.
- Figure out how much it would cost to replace all your belongings with brand new items. If your policy doesn’t meet this value you may be underinsured.
- Get a builder or a professional valuer to come in and help work out the cost of rebuilding your property including any external structures. If this isn’t the value of your policy you may be underinsured and it will be worth taking out more insurance.
- Take time to regularly check your cover and make sure you review sum you have insured on your policies each time you renew them.
- Read the Product Disclosure Statement thoroughly, to make sure you understand the specific restrictions of your policy.
Do you have a home and contents policy and have you taken the necessary measures to make sure you’re not underinsured?
Let us know in the comments.
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