Are you under-insured?

Under-insurance is rife in Australia and it's not choosey. It has pretty much infiltrated every area of insurance but it's the home and contents horror stories we see in the media that really attract attention. For instance, many of those whose homes were destroyed in the recent Victorian bushfires can't afford to rebuild because they did not have enough insurance. A surprising number of victims had no insurance at all.

As far as material goods go, your home or property is likely to be your most valuable asset. Insuring it for less than what it would cost you to rebuild makes about as much sense as insuring a Porsche at a Hyundai price. You might get away with it but at some stage the gap in cover is going to come back to haunt you.

Apart from not receiving enough money to cover the cost of your loss, there's an added risk that can be far greater. If you have significantly under-insured your home or contents your insurer may have the right to pay only part of any loss because you've insured for only part of what it's worth.

Let's say you insure your home for $150 000 but it's really worth $250 000 and a fire does $80 000 damage. Your insurer may have the right to reduce the payout in proportion to the level of under-insurance. In this case, there might be a payment of only $48 000.

The Insurance Council of Australia estimates that more than 40% of households fail to correctly assess the value of their home and contents, so there's a real chance you could be under-insured.

Home and Contents Insurance ...