Five costly home insurance mistakes
There are five common – and often costly – mistakes made by those choosing their home and contents insurance policy, according to QBE National Householders Product Manager, Angelo Colosimo.
Take a look at the list below to make sure you don’t fall into any of these traps.
1. Forgetting to update your insurer
When your living circumstances change, it’s very likely your home and contents insurance policy should too.
Some examples of changing circumstances include moving home, changes the occupancy or planned additions or renovations to your residence.
“Many people forget to keep their insurer in the loop and are too often found either paying too much for their insurance or not enough based on their circumstances or assets, which means that they may find themselves in financial trouble if their home is lost or damaged,” he says.
Overall, 10 per cent of Australian homes have inaccurate sum insureds because homeowners provide an estimate of the value of their property to their current insurer based on the purchase price more than two years ago, according to the Insurance Council of Australia (ICA).
In addition, more than half (53 per cent) of people who purchased a new high value item in the past five years, failed to update their contents policy.
Examples of high value items include jewellery, photographic equipment, watches or bicycles.
Colosimo says you may want to revise your sum insured if you have acquired items like these over time and haven’t updated your insurer.
2. Misunderstanding exclusions
Only around half of Australian homeowners (53 per cent) and renters (44 per cent) think about exclusions to their insurance policy when selecting their home insurance cover, according to the ICA.
This is an important part of your policy’s Product Disclosure Statement (PDS).
The PDS is the document that insurers must provide to customers. It includes the terms and conditions of the product and explains the policy benefits and exclusions. It also details how your insurer will respond if you make a claim.
“There could be no worse scenario than paying for insurance that doesn’t cover what’s most important to you when the unexpected happens,” Colosimo stresses.
“A common assumption we see is that home insurance is valid while your home is undergoing renovation, construction or repair. However, substantial alternations to your building is an exclusion on many insurer’s home and contents insurance policy,” he adds.
3. Overlooking the risks of your home location
How do you know how at risk your home location is? Different suburbs have higher risks for catastrophes such as bushfires, flooding, storm or cyclones.
Similarly, different locations may have higher instances of crime, so burglary or vandalism might be a key risk for certain areas.
“Generally, risk factors are based on the prevalence and types of claims that insurance companies see in certain regions or suburbs over time,” says Colosimo.
The cost of your premiums can be adjusted based on how often these types of insured events happen in your area.
“It’s important to understand how likely it is for a catastrophe to happen in your area and ensure you’re covered.” he adds.
4. Forgetting about inflation
“People often underestimate the increase in value of their home and some of their personal belongings over time which means that they don’t have the correct limits on the total value of their property,” says Colosimo.
In fact, the ICA found the vast majority (81 per cent) of Australian homeowners are exposed to significant financial loss because their insurance doesn’t cover them to resume the same standard of living if a crisis happens.
5. Assume everything is covered
This echoes the mistake of misunderstanding exclusions on your Product Disclosure Statement.
According to Colosimo, a common misunderstanding with home and contents insurance is around the level of care and maintenance that’s required from the insured.
“People must take reasonable care to prevent damage or total loss of their home,” he says. “Home insurance covers you for damage or loss that happens as a result of unexpected insured events that aren’t in your control, such as a storm.”
“However, you may not be covered if your home suffered water damage as a result of a maintenance issue, like blocked downpipes or guttering. It’s up to the insured to keep maintaining their home and safeguarding from future damage,” Colosimo adds.