Is your home underinsured?

Cold weather and faulty appliances can be a dangerous combination in winter - especially if your home is underinsured.

As we head into winter, now is the time to check your home heating appliances – and your home and contents cover. The cooler months typically see an uptick in home insurance claims with a rise of up to 47% in colder states like New South Wales though Victoria leads the country for claims in winter. Sadly, these claims are often the result of fire damage caused by dodgy appliances.

Research shows some of the most common causes of home fires in winter involve embers escaping from open fireplaces, electric heaters being knocked over, faulty electric blankets and even bathroom heat lamps exploding when they become clogged with dust.
That makes it worth keeping your home safe by giving heating equipment a once-over and a thorough clean. If in doubt, consider replacing older appliances. It’s better to be safe than sorry.

Four out of five homes are underinsured

It also makes sense to check that your home and contents insurance is up to date. Winter doesn’t just bring increased risks of fire damage, it can also deliver some wild weather.

Most Australians have home building and contents insurance, but many of us don’t have enough cover to protect what may be our most valuable asset – and one that could go hand in hand with a substantial mortgage.

It’s estimated that four out of five Australian homes are underinsured – meaning the property is covered for less than 90% of rebuilding costs. It’s an easy trap to fall into because home owners, understandably, simply don’t know what it would cost to repair or rebuild their homes. Yet that’s exactly what the “sum insured” is supposed to represent. The bottom line is that a lot of people are relying on some very rubbery figures to insure their home.

Calculating rebuilding costs just got easier

Playing a guessing game with home insurance can mean finding yourself wildly out of pocket at claim time – something that can be financially and emotionally devastating. Frankly, it’s not worth the risk.

The good news is that a new home insurance calculator is available on the Understand Insurance website. It provides a clear picture of the likely cost to rebuild your home, and it’s based on data from building cost estimator Cordell using the most up to date information to provide real-time cost estimates.

The calculator is worth a look – a colleague put her home to the test and was amazed to see the cost to rebuild her place is double what she expected. It’s a problem that’s easily solved. Paying just a bit more in premiums often buys a lot more cover.

But it’s also important to have the right policy in place for your needs, and that’s something where people add a lot more value than online calculators. It’s worth speaking to your financial adviser to be sure your home and contents cover is a good fit for your situation, your home and your budget.

 

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.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.