Here are the four main reasons why you probably can’t afford the cost of not being insured.
Reason 1: Natural disasters on the rise
According to the Australian Bureau of Meteorology (BOM), the 2014-2015 season was the first time in 35 seasons that all the cyclones to touch Australia were ‘Severe Tropical Cyclones’ of category 3 or higher. 2015 wasn’t a great year for many Aussies!
Could you afford to rebuild your home if it was destroyed by things out of your control, like a fire, storm, or bushfire? What if you had to replace or repair all of your furniture and household appliances at once because of flood damage?
Statistics from the Insurance Council of Australia show the real cost involved for a community when natural disasters strike:
- Cyclone Marcia in northern Queensland: $522 million
- Hailstorm in Brisbane: $1,340 million ($1.34 billion)
- Storms in northern NSW and SE Qld: $354 million
- Storms in southern NSW: $922 million
- Hailstorm in Sydney: $413 million
- Bushfires in southern SA: $36.6 million
Reason 2: Climate change may decrease home value
As if natural disasters weren’t enough, we’re also facing climate change. According to BOM’s annual climate statement, 2014 was confirmed as Australia’s third-warmest year on record. It follows sharply on the heels of the number one warmest year on record, which was 2013.
What does climate change have to do with anything? In June 2014, independent analysts Climate Risk reported that based on high-end climate projections, the impact of climate change on insurability could lead to property value reductions of 20% or more over the life of a standard 30-year mortgage. In addition, an average home insurance premium could rise by 92% over the life of a standard 30-year mortgage. That sounds like a lose/lose situation.
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Reason 3: Burglars and thieves
What if a burglar stole your most valuable possessions and you had to replace them? According to Australian Bureau of Statistics (ABS) data in 2013-2014, 1 in 40 Australian households – 228,900 homes or 2.6% of people – experienced at least one break-in during the year.
- 20% of these homes were broken into a second time within 3 months of the first offence, after they had replaced the first lot of stolen items!
- In the majority of cases, burglars stole property (73%) and personal items (31%), and damaged property (50%).
- Thieves gained entry through the front door, windows, and back door.
- A further 1.9% of households – 170,800 homes – experienced an attempted break-in.
Unfortunately, 18% of households did not report the break-in to police, and 57% of households who experienced an attempt did not report it. If your home was broken into, you should report it immediately to the police, as proof of your loss when making an insurance claim.
Thankfully, ABS statistics show a significant drop in the rate of property crime from 2.9% of homes experiencing a burglary in 2011-2012. But that’s no reason to get complacent. No matter what your wealth or stage of life, thinking about the possibility of losing your home or treasured possessions probably gives you some butterflies in your stomach.
While nothing can avoid the sentimental loss of your belongings, home and contents insurance can at least avoid the financial hit that you would otherwise take. If you have the right amount of coverage, you can rest easy knowing most of it can be replaced.
What would contents insurance cover for you?
Contents insurance depends on the type of cover you choose, from loss due to burglary and fire to damage caused by accidental events. To work out how much cover you need, walk through every room in your house – including the dusty garage or attic – and making a list of every single item you own and what it would cost to replace it.
Take photos of every item you intend to list on your policy, to prove that they are currently in good condition. Rustle up all the receipts you can find to prove what you paid for them. Get a valuation done of all your especially precious items, such as jewellery.
Policies can cover the market value of your belongings, or they can cover new-for-old replacement of your belongings. The cost of your premium depends on how much your belongings are worth, and new-for-old policies also tend to be more expensive in general. There are a bunch of variations between policies, so always read the fine print in your PDS before signing up for a policy.
The NSW Police Department also recommends marking or engraving certain items with your name, as this makes them less likely to be taken and resold by burglars:
- Gaming consoles
- Tablets, iPods, MP3 players
- Stereo equipment
- Musical instruments
- Kitchen appliances
- Office equipment
- Garden tools and power tools
- Collections – stamps, coins, shoes…
- Designer clothing
- Sporting equipment
- Outdoor furniture
Other things people commonly forget to include on their policy are carpets and blinds, which come under contents insurance rather than home building insurance. You can even include your smartphone in your contents insurance, although it won’t be covered when it take it out of the house with you. (You can get insurance from your mobile provider for that.)