Most Australian homeowners set-and-forget when it comes to their home insurance policies. Unfortunately, that means many are underinsured and most owners won’t know until it’s too late. In fact, the Insurance Council of Australia estimates that 80 per cent of property owners are underinsured. With bushfires and floods affecting many homeowners around the country already this year, it’s important to make sure your greatest asset is insured properly.
Although your home insurance policy may last six or twelve months, you shouldn’t simply renew the policy and forget about it each time. Reviewing your insurance policy at least once a year allows you to check that it sufficiently covers the cost of repair should something happen to your home. One important factor to consider when comparing and choosing your policy is inflation. The cost of rebuilding your home includes building and material costs which will likely rise in the course of a year.
Your home is subjected to all sorts of unexpected events, some of which are dependent on where you live. Insuring your home protects you financially against unexpected events such as a house fire, storm damage or other types of disasters, including floods. For example, if your home is located in a rural and bush setting, you might be more at risk of bushfires but less at risk of flooding. Check your property’s Bushfire Attack Level rating with your local council or local government as your risk might add significantly to any rebuild or repair costs. These will need to be calculated to ensure you’re not underinsured.
A common mistake people make when insuring their home is to focus on the market value of the property and assume that it’s the same value as the cost of rebuilding or repairing. When calculating what you need to insure against, you should focus on the cost of replacing or rebuilding your home. Australian consumer advocacy organisation, CHOICE, recommends when using home insurance calculators, to be as detailed as possible to avoid being underinsured. When calculating the estimated construction costs, you’ll need to consider factors such as the size of your home, the number of bathrooms, masonry, and the types of exterior walls. If you’re insuring the contents of your home, you should make an inventory of your belongings, including photos of items where possible, to make it easier if your home is severely damaged.
Don’t wait until your home is damaged to find out if your home insurance policy covers the cost of rebuilding.