Why you shouldn't Underinsure

A survey by the Insurance Council of Australia (ICA) has found that around a quarter of Australian households do not buy house & contents insurance.

Almost 70% of tenants do not protect their property and one in six small businesses has no insurance protection.

Around 7.5% of home buildings are insured for less than 70% of their replacement value; 20% of home buildings are insured for 70% to 90% of replacement value.

Anecdotal evidence from research for the ICA report found up to 35% of contents were markedly underinsured. The ICA said 70% of uninsured and under-insured small businesses affected by a major event, such as a legal claim against the business, an earthquake, fire or storm, don’t recover.

In the case of under-insurance, most insurers pay only the sum the policyholder has insured. So if your home is worth $200,000 but insured for $100,000, the insurer will only pay $100,000 if the house is destroyed. Some policies include averaging or co-insurance clauses, which mean lower payments are available if a claim occurs and you have failed to maintain insurance at adequate levels.

Underinsuring your property can have serious ramifications, as our Case Study illustrates.