Time to take cover

Summer once again highlighted the extremities of our harsh Australian weather. In addition to Dorothea Mackellar’s “droughts and flooding rains”, communities too often contend with bushfires, cyclones and severe storms; stark reminders of the need for adequate home insurance cover.

But wild weather is not to blame for every home insurance claim. Break-ins, fire and unfortunate accidents can all lead to property and contents damage or loss.

Although often considered a grudge purchase, most home owners are prudent enough to have some building and contents cover. Unfortunately though, the Insurance Council of Australia reports more than one in five households – many of them renters – still have no home contents insurance, leaving them without any financial footing should the worst happen.

Additionally, many of us with home insurance may not have enough. According to the Australian Security and Investments Commission, up to 80 per cent of Australian households are under-insured by 10 per cent or more.

Adequate home insurance cover should be part of your personal financial plan. Very few people have enough savings to get back on their feet if they lose their home and contents. Insurance is an investment in ‘what if’ and the best way to ensure you are prepared for life’s mishaps.

Here are our top tips to make sure your household is covered.

Your home insurance premium (the fee you pay each month or year) is calculated using a range of risk factors, such as weather, building materials and security, and your sum insured (the amount for which your home is covered). But slicing your sum insured to save on the premium could cost you severely in the long run if you experience a significant or total loss.

Make sure you have a high enough sum insured on your building policy to rebuild your entire home from the ground up. That includes all fixtures and fittings, such as cabinetry, lighting and floor coverings, plus fencing, landscaping, garages and sheds. Most insurers ask you to determine your sum insured while others will provide a full-replacement policy, based on their determination of your cost to rebuild.

While home building cover only applies to property owners, contents cover should be taken out by both owners and renters. Many households make the mistake of calculating the second-hand value of their items, when they should be looking at what it would cost to buy the same items today. Others only count big-ticket or expensive items, such as furniture, televisions and technology, overlooking clothing, cutlery, linen and other daily needs, which soon add up if all is lost.

Most insurers offer online building and contents calculators to help you with your sum insured, as does the Insurance Council at www.insurancecouncil.com.au/for-consumers/calculators

Make sure your insurance cover stays in step with your life. Marriage, children and renovations can all add to the value of your home and contents. Take stock each year of new purchases, such as jewellery and expensive technology, and increase your sum insured if needed.

The Victoria and Queensland floods of 2010 and 2011 left thousands of households high and dry financially because most insurance policies did not cover flood. Since then, most insurers have built flood cover into their policies either as standard or optional. All households should check with their council if they are at risk of flood and whether their home insurance policy covers it.

Generally, other natural disasters, such as bushfires, cyclones and storms, are covered as standard in home insurance policies and are not optional. You will, however, pay a higher premium if your home is considered at higher risk.

You should also check whether there are limits on the value of what your insurer will cover. Most insurers, for example, only cover jewellery up to a certain amount, unless you nominate specified items.

With the popularity of portable technology, it is worth considering cover for your valuables when you are away from home. Policies vary but most insurers offer portable valuables cover for items such as cameras, laptops and jewellery. Some insurers will cover items that are lost or stolen away from home as standard while others will offer it as an option for an extra premium.

The best way to find out what your policy covers is to take the time to read your product disclosure statement (PDS). Most insurers make them available online if you have misplaced your paper version. Insurers are also required to present the information in plain English. You will find most spell out quite clearly what you will and won’t be covered for. If in doubt, pick up the phone and ask.