What is Home and Contents Insurance?
Home and contents insurance protects you financially against damage to your property (the building) and your personal belongings (the contents). There are two main types of home insurance:
- Building insurance covers the physical structure of your home, including the house, garage, fences, paved driveways, and fixtures like dishwashers and air conditioners.
- Contents insurance protects your personal items inside the home, such as furniture, curtains, internal blinds, carpets, electrical appliances, and clothing.
The Risks of Underinsurance and Overinsurance in Home and Contents Coverage
Underinsurance
Being underinsured means that the value of your property or belongings exceeds the coverage provided by your insurance policy. In the event of damage or loss, you may not receive adequate compensation, leaving you responsible for covering the remaining costs out of pocket.
Underinsurance is a significant issue in Australia. Kirsty Hayes, the director of home and business insurance at RACV, noted that homeowners often assume their policies will cover all costs following force-majeure incidents, only to face a harsh reality when they receive the final quote.
She postulated a scenario where a homeowner property sustained so much damage after a bushfire or flood, it was totally written off. When it is revealed their home and contents insurance coverage did not cover the full cost of rebuilding the property, the homeowner is forced to take out a loan to compensate for the shortcomings.
Overinsurance
Overinsured refers to having coverage that exceeds the actual value of your property or belongings. While it may seem like a safe option, overpaying for unnecessary coverage can lead to higher premiums and wasted financial resources.
Where Your Insurance May Fall Short
There are factors that may reveal parts of where your home and contents insurance is lacking.
Changes in Property Value
If you’ve made significant improvements or renovations to your home since obtaining your insurance policy, the value of your property may have increased. Failing to update your coverage accordingly can leave you underinsured and unable to recoup the full cost of repairs or rebuilding in the event of a disaster.
New or Expensive Purchases
Acquiring high-value items such as jewellery, artwork, or electronic equipment may require additional coverage beyond the standard limits of your contents insurance. Neglecting to update your policy to include these items can leave them underinsured or completely unprotected.
However, some high-value items might be covered by additional coverages in a contents insurance policy under special circumstances; the team at QReport Jewellery Insurance, in particular, states that if you have an array of top-tier luxury watches, they must be listed in a separate section or must be insured for a higher value to ensure you can reclaim as much of the actual cost as possible. Let’s face it; premiums differ for a 1970-1971 Rolex Datejust Shantung against anything in the Graff Diamonds catalogue.
Inaccurate Valuation
Inadequate coverage can also result from an inaccurate assessment of the value of your property and belongings. If you’ve underestimated their worth, you may be paying lower premiums but risking significant financial losses in the event of damage or theft.
Optimising Your Home and Contents Insurance Coverage
You can adjust your home and contents insurance for added coverage when needed.
Regularly Review Your Policy
To ensure your home and contents insurance policy remains adequate, it’s essential to review it regularly. Assess any changes in property value, renovations, or new purchases that may require adjustments to your coverage. Contact your insurance provider to discuss updates and potential premium changes.
Obtain Professional Valuations
Engaging professional appraisers or valuers can accurately determine the value of your property and belongings. Their expertise ensures that you obtain precise valuations, allowing you to secure appropriate coverage and avoid being underinsured.
Consider Additional Coverage
Evaluate your policy’s coverage limits and exclusions to identify any gaps in protection. If you have high-value items that exceed the standard coverage limits, consider adding endorsements or specific policies to safeguard those assets adequately.
Multiple Quotations
To ensure you’re not overpaying for coverage, compare quotes from different insurance providers. This allows you to assess the market rates for similar coverage and negotiate with your current provider for better premiums or policy terms. Make sure to read the Product Disclosure Statement (PDS) as well to get an idea of how your quote will be broken down.
Increase Deductibles
Adjusting your policy’s deductibles, the amount you are responsible for paying before insurance coverage kicks in, can impact your premiums. Increasing deductibles can lower your premiums but requires careful consideration of your financial capabilities in the event of a claim.
Bundle Policies
Consider bundling your home and contents insurance policies with the same provider. Insurance companies often offer discounts for combining multiple policies, reducing your overall premiums while maintaining adequate coverage.
The Bottom Line
Having an adequate home and contents insurance policy is crucial for safeguarding your property and belongings against unexpected events.
Assessing your coverage regularly, accounting for changes in property value and new purchases, and obtaining accurate valuations are essential steps to ensure you’re not underinsured. Likewise, comparing quotes, considering additional coverage, adjusting deductibles, and bundling policies can help optimise your insurance spending. If you feel that there’s something lacking in your existing policy, talk to your insurer.
DISCLAIMER: This article is for informational purposes only and is not meant to be official insurance advice. QUICKLE has no relationships with any company or individual mentioned in the article nor endorse any product. Please consult your insurer as soon as possible.
