Insure and protect your best assets
Home owners and renters are leaving themselves dangerously exposed to financial loss, with many failing to insure their home and contents. As we head into the festive season – a busy time of year for burglars, it makes sense to have adequate protection in place for what could be your most valuable assets.
As property prices rise, many Australians are borrowing more to fund the purchase of their home. Yet despite this, a recent report by insurer QBE found one in five people with a mortgage don’t have building insurance in place, and only 74% of first home owners have taken out building cover.
Skipping home and contents insurance is a risk no home owner can afford to take. If your home is badly damaged – or worse, destroyed, you’re still expected to pay off the mortgage even if you have to fund accommodation elsewhere while the home is repaired or rebuilt. You could be left further out of pocket by having to replace furnishings and other belongings.
Renters are even more vulnerable. Tenants don’t need to insure the value of the building they’re renting – that’s the landlord’s responsibility. It is still a good idea to have contents insurance in place, but it turns out the nation’s 4.5 million tenants are ten times less likely to insure their contents than homeowners. Three out of four (74%) renters do not insure their home’s contents, rising to 82% of tenants living in apartments.
The big worry is that renters face a higher risk of being burgled. According to the Insurance Council of Australia, 44% of claims on contents policies made by renters relate to burglaries. Among home owners that figure is 19%.
The good news is that premiums for home and contents insurance have fallen this year in many areas, and plenty of insurers offer discounts if you organise and pay for cover online. Bear in mind though, having the right cover for your needs is just as important as getting a good deal on premiums.
An investigation of the home insurance market by the Australian Securities and Investments Commission (ASIC) found many of us choose home and contents cover based solely on the lowest possible premium. We often don’t know exactly what the policy does - and doesn’t - cover, and worse, when it comes to working out the insured value of our home we often take a stab in the dark.
There are plenty of tools to help you choose the right insurance policy. The Insurance Council of Australia’s Understand Insurance website (www.understandinsurance.com.au) is a handy starting point. It features lots of tips and calculators, and a database to help you find an insurer. Or, take a look at the latest home and contents insurance star ratings report from Canstar (www.canstar.com.au) for an idea of the insurers offering the best value across different states and territories.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
What you need to know
Any advice in this article is general and does not take into account your personal circumstances so before making any decisions, consider your circumstances and the relevant product disclosure statement.