It appears that for many people who have worked out their home insurance with online calculators they may be underinsured by up to 66%. This was shown in a recent study undertaken by MCG Quantity Surveyors who also expressed their concerns that even though the calculations are known to be erroneous, many government departments and insurance companies continue to recommend their use.
What do they mean by underinsured?
In money terms, underinsured by 66% means that in the event that the average homeowner would have to rebuild their home, they would have to pay approximately $443,399 out of their own pocket.
How is it possible that the calculators are wrong?
Most of the online calculators are not taking added costs into the equation when working out the amount that your home needs to be insured for. Things that need to be taken into account when insuring a home include the demolition costs in order to rebuild, removal of debris from the site, consultant fees, and the consideration of cost escalations.
How did they come to this conclusion?
MCG Quantity Surveyors used a home in Aird that they valued at $668,559 for their research. They included all the extras that would be needed in the event that the home was to be rebuilt. When the same data from the valuation was put through the test at various online calculators they got varying results. The lowest value was at 66% less than what would be needed to rebuild the home at $226.160. Unfortunately, even the highest estimate still left the homeowner underinsured by 20% or $133,559.
Why is it important to have insurance for your home?
Certain parts of the country are more prone to bushfires and flooding, but climate change has also increased the ferocity with which storms hit certain areas. Home insurance covers the cost of repairs and even rebuilding your home and many homeowners also bundle it with contents insurance.
How can you ensure that your home is not underinsured?
There are quite a few things that you can do to ensure that you are properly covered and not left with all the bills if you need to rebuild.
Underinsurance cover policies are like a safety net if you feel that your insurance policy may not give you enough cover. If you have already been paying a policy for many years and don’t want to lose any benefits by starting anew, this is the best protection. If there are any potential claims then you will be covered for any extra costs in the event that you need to rebuild.
Review your policy every few years so that you can adjust the value of your home according to the rise in rebuilding costs and to ensure that you are always adequately covered. Your homes may increase in value if the suburb that it’s situated in becomes popular. Renovations or extensions may also increase its value considerably.
Total replacement policies are a good way to ensure that you are not underinsured. They cover the entire building or repair cost for your home to what it was before the disaster. The premium payment will be higher, but there will be no need to take out any added insurances and you will sleep better at night, especially if your home is within an area prone to natural disasters.
Check for any risk factors in your area. Some areas are more prone to natural disasters and it is always a good precaution to take out additional cover if it is located in zones where bushfires, cyclone, and flooding are more prevalent. Some policies may have exclusions caps and limits so always read the Product Disclosure Statement (PDS) so that you know what you are covered for.
Cheaper home insurance is often tempting but it could be pointless in the event that you need to rebuild, covering you with only part of the costs.
Insure the contents of your home because their total cost can add up to quite a substantial sum in the event that they all have to be replaced at once. This is especially important if you live in areas that are more disaster-prone. Many homeowners opt for fire insurance or flood insurance to ensure that their possessions are all covered.