Insurance is a safety net for financial damages that are either unforeseen or too overwhelming to tackle. Yet, the majority of Australians are ignorant and insufficiently insured when disaster strikes.
Those who fail to appreciate the worth of their properties run the risk of being underinsured or not insured at all. For that, there are some ways you can avoid this.
If you are someone who thinks insurance is too expensive, too complicated, or fail to see the value in insurance policies or your own assets, you’re likely to be underinsured or non-insured.
And, you might be right! In fact, getting insured requires knowing your options and ensuring balance. But imagine if a fire breaks out in your home and all your furniture gets destroyed while your designer clothes are burnt to bits. Would you rather be covered by insurance or depend on your bank, friends, and family for monetary support to pull yourself together?
Despite the insurance industry in Australia offering a myriad of choices and coverage to fulfill differing demands, and having options to afford premiums, plenty of Australians are still not insured. This is especially worrying since the majority don’t have sufficient funds to pay off unexpected large expenses that can arise anytime like a fire or a medical emergency.
According to the Australian Bureau of Statistics, about nearly a quarter of households in Australia —which is a staggering 1.8 million houses— are not insured for their possessions and home.
Although there is compulsory insurance that motorists must purchase when they get their vehicles, most motorists consider this sufficient. But, most of this personal accident insurance only covers other people in a collision, and not their vehicles or yours.
Some reasons why Australians remain uninsured include salary, family dynamics, and a lack of habit. If enough people in the nation opt-out of insurance, there could be spillover effects when catastrophic events strike that could take a toll on the governing party and ultimately, the taxpayers.
The Australian government does provide some monetary support to non-insured households that suffer from major crisis events. But, this support is limited as it is only available when the disaster is wide-spread and is only meant for urgent necessities like water and interim homes instead of things like reconstructing people’s houses or buying back their furniture.
Being insufficiently insured means that the coverage of your insurance policy for your property is less than the actual cost incurred to recover them. It happens most frequently for insurance policies for home and household possessions.
As a general guide, you are underinsured if the policy only settles up to 90% of the total cost of reconstruction. If this applies to you, sad to say the coverage you paid for has limited usefulness for you and your loved ones in times of financial crisis as you still have to fork out money from your own means to recover the losses.
Several policies include averaging, where if you under-claim a property, the insurance agency can decrease the payout by a certain amount. For example, you got insurance for a property for $50,000, which is 20% below its actual value. If there is averaging, the agency might only give a payout of $40,000.
Thus, if you still think that you can save money by non-insurance or underinsurance, think again. The balance has to come at the expense of either your own pocket, your relatives’, or even society in general. In severe cases, you might end up exhausting your funds, using up your possessions, or ultimately becoming bankrupt.
It’s best to play it safe and be informed of your insurance policy so that you are assured of adequate coverage and financial safety for you and your family.
Reasons For Insufficient Insurance
Over the years, it is only natural that our stash of property slowly increases in size and worth. Most people underestimate the total value of having to substitute these possessions until it is too late.
When revising the nominal value of insurance, many forget to include the extra expenses from replenishing their possessions and refreshing their furniture over the years.
Another reason is the perception that insurance is unimportant. This causes the majority to simply get an affordable premium, then take whatever coverage that it offers for the rest of their lives instead of calculating and ensuring all their possessions are accounted for.
Additionally, the expenses you need to rebuild your home might increase over the years. That could be because of newly established building rules and laws, or a sudden increase in the market price for your building due to a demand change that makes it much more costly to reconstruct your house.
How To Get Sufficiently Insured
Calculators that help determine the value of your possessions come in very handy for figuring out how much insurance you should get. These calculators can be readily found online or in some apps on your mobile devices.
After calculating, you might notice that the number is inconsistent with the coverage you got. In that case, making a list of all your assets in each room ensures that they are particularly accounted for and lets you figure out the exact amount required to replace them. It also makes your claiming process a smoother one.
When working out the cost of reconstructing your property, take into account the outdoor possessions like fences, on top of the usual expenses including waste disposal, electricians, builders, and designers. If you’re unsure, you can always engage a professional to do the math for you.
Consistently review your insurance coverage, especially when you renew them, to ensure that you keep up with inflation.
At the same time, you should familiarize yourself with the Product Disclosure Statement distributed by your agent about the product you opted for. Take note of the policy distinction between a limited amount insured and a full substitution. Policies for specified incidents and unexpected losses are also different.
The bottom line is to get the insurance that can sufficiently cover all your precious possessions in case of accidents or unforeseen circumstances. In order to do so successfully, it is important that you do your homework prior and engage the appropriate professionals if necessary so you can make the best choice for yourself and your loved ones.