A major cause of under-insurance in Australia is the set-and-forget factor. We take out home and contents insurance initially and then simply forget about it. There are no updates done when renovations are finished, refurnishing takes place and other improvements are made.
Even the contents of our homes are changing constantly. Apart from big-ticket items like home theatre systems, what about the sundry items such as clothing, cleaning products and equipment like vacuum cleaners? Most people forget that when tragedy strikes, you can lose everything. That’s why home owners are always advised to do a regular inventory of their home and contents and adjust their cover accordingly.
Premium renewal time is a great reminder to do this and shop around to compare your level of cover and the value it does or does not continue to offer you.
It’s easy to see why the majority of Australians under-insure their home and its contents. Unlike those in other countries, Australian building insurance policies place the burden of estimating rebuilding costs on the consumer.
This results in home owners making a “guesstimate” of the rebuilding costs. Naturally, the majority of home owners don’t have the knowledge to accurately do this. Some insurers’ websites have calculators to help you but in reality, you need to look into a combination of calculator-based costs and your own figures.
Points to consider include:
- Estimating the cost of rebuilding your house today, rather than when you originally built the home
- Looking at the style, materials used, structure and finishes
- Considering cost of professionals like architect, engineer, surveyor, plus legal costs
- Factoring in council approval plans and fees
- Keeping in mind regional differences – building in Perth is a lot cheaper than building in Sydney
- Remember to check if your policy covers demolition, debris removal, leveling/landscaping – many don’t
- Seeing if your insurer will pay for temporary accommodation while building is in process
Be mindful of the differences between the two most common methods. The simplistic cost-per-square metre method leaves a lot to be desired. Elemental estimating, on the other hand, takes in features such as sloping land and quality of finishes which can really bump up building costs.
COMPANIES COMBAT THE PROBLEM
Some insurers have tried to address the problem of under-insurance by offering full value protection with their normal home insurance policies. This is separate from any elite or prestige policies they may offer.
Full value protection means that they will guarantee to cover the full cost of rebuilding, provided you have given them ‘reasonable’ information when taking out the policy. Comminsure takes this approach while Suncorp/GIO offers what they call safety-net cover where they will cap the payment at 25 – 30% above the sum insured. But a word of caution. Reasonable information is not, for instance, insuring a $500 000 home for $250 000 and expecting the insurer to pick up the shortfall in the event of a disaster.
AAMI takes a unique approach. Instead of asking the usual “how much do you want to insure for?” AAMI asks for specifications of the house – number of bedrooms etc – and then undertakes to replace the house to these specifications, should the worst occur.