Do Australians have enough insurance?
According to a recent survey, 83% of Australian households believe they’re underinsured. What that means is, that without an appropriate amount of insurance, you may be responsible for at least a portion of the cost of your car or home repairs for instance, in the event of any unexpected damage or loss that exceeds your policy limit.
Here’s what you need to know about underinsurance in Australia – and how to protect yourself against the risks.
What is underinsurance?
Unlike ‘uninsured’ which means you don’t have cover for things like your house, car or life, underinsurance is more difficult to measure – especially if it’s been a while since you last checked your policy.
Simply put, underinsurance means your current policy isn’t enough to cover the value of what you have insured. It can happen to anyone, and may be due to ‘asset creep’ which tends to happen when you acquire new possessions and they increase in amount and value over time but you do not update your policy sum insured, or it can occur when there are major life changes, like starting a family, and you don’t update your life insurance policy to reflect your current situation.
Categories where underinsurance can be common
According to research into underinsurance in Australia, there is a widening gap between the amount of life insurance needed and the amount of life insurance held. In particular, the total sum insured for both death and TPD (Total & Permanent Disability) cover decreased by 17% and 19%, respectively, over the two years to June 2020.
It’s a problem that has also spread to both home and car insurance, with a huge gap between asset value and the amount of insurance cover held. According to the Australian Securities and Investments Commission, up to 80% of home owners are underinsured. Research related to the rental market has found that a significant portion of renters in Australia either have no contents insurance or are underinsured.
What are the reasons for underinsurance?
With our busy lives, it’s easy to forget about insurance once we’ve taken it out, especially if we don’t even notice the premiums being taken out of our bank accounts every month. But not paying enough attention to your level of insurance is one way to end up underinsured, which means you could find yourself severely out of pocket in the event of a car accident or house fire.
It’s also quite common to believe that bad things only happen to other people, and taking out less cover than you need as a result. While that may save you money up-front, it could be costly when it comes time to make a claim, with the money for repairs or for replacing a lost, stolen or damaged asset coming from your own pocket.
To help you identify possible underinsurance, here are some of the most common factors that can contribute:
- Asset creep: Everybody does it – we slowly accumulate more and more possessions. Insurance is probably the last thing that comes to mind when you get a brand-new TV, but it’s important to speak to your provider so that these changes are reflected in your policy.
- Not covering upgrades: Added an extension to your property? You need to update your home insurance policy. Installed an expensive new sound system in your car? You need to update your car insurance policy.
- Rising labour costs: Builders may raise their prices and the cost of building supplies may increase during catastrophes, so you should factor that into your home insurance. If you’re forced to rebuild part or all of your house and you’re only covered for what it would have cost 10 years ago, you may be left with a big gap to cover on your own.
Risks of being underinsured
The most obvious risk of underinsurance is that the financial shortfall will be your responsibility to cover.
This can affect not just you, but your partner, your children, and your wider family. Especially if the insurance was for a major asset like your family home, you need to consider if you would have the means to cover an underinsurance gap to rebuild it?
How to minimise the likelihood of being underinsured
It’s true that underinsurance is a growing problem in Australia. It’s not helped by the rising cost of living, as well as inflation and higher interest rates. But the bottom line is that most people don’t plan to be underinsured. If the worst does occur and you need to make a claim, you’ll want to be confident that your insurance can cover you for the full amount needed.
Here are some helpful steps you can take to avoid being underinsured and be able to rest easy knowing you have the cover you require:
- Make a list of all your belongings (for home and contents insurance) and work out how much it would cost you to replace them.
- In order to be as accurate as possible, use a home and contents calculator to determine a hard figure. This will provide a guide on the amount of cover you’ll need.
- Regularly measure your existing policy amount and the cover you’d need to replace your assets in the event of a claim.
- Always read your policy’s Product Disclosure Statement (PDS) to avoid any potential underinsurance problems.
An easy risk to avoid
Despite the widening underinsurance gap in Australia, it’s an easy risk to avoid if you stay on top of your policy. Make sure you speak to your provider when you experience major life changes that could impact your required cover amount, and when you modify or acquire assets that need to be covered.
If you haven’t yet found the right policy or simply want to reassess your cover, you can get started today by comparing a range of insurance policies with Choosi. Call 13 55 55 or compare online right now.
5 Aug 2022