Home insurance is designed to protect you against the costs of repairing or replacing your home in the event that something happens to cause damage, like fire, flood or storm.
How much you’re insured for is based on your estimate of how much your house would cost to be replaced/rebuilt at the time the policy is written. That total is known as your ‘sum insured’.
But what if your estimate is wrong or has changed?
How underinsurance happens
Statistics* show that 40% of Australians have the wrong sum insured.
Often that’s because people 'set and forget' about their home insurance year in and year out and fail to factor in that the costs of replacement have risen.
There’s lots of reasons why home insurance should be updated every year:
- the price of building materials and the cost of labour go up
- new building codes can dramatically affect the costs of repairs and rebuilding, especially if you live in an area prone to bush fires
- or if you add a swimming pool, a second level or other extension to your home.
While having some home insurance for small events is better than having none, if you’re underinsured and have to replace a roof or do a major rebuild, it could be financially devastating.
5 tips to avoid underinsurance
The emotional trauma that comes with having to rebuild or replace your home is bad enough, without the added burden of realising your insurance doesn’t cover it all.
To help give you greater peace of mind, here are some tips on how to make sure you’re fully protected:
- If you’re thinking of getting a sum insured policy, make sure you’ve got an accurate estimate of your home’s worth. The NRMA home buildings calculator can help you by taking into consideration a range of factors that influence the value of your home.
- You can also get a second opinion on your sum insured estimate. Seek out an independent quantity surveyor or valuer with a good reputation.
- For extra peace of mind, consider adding optional extras that cover things like accidental damage and vet costs for injured pets; or really put yourself at ease with NRMA’s Home Plus Insurance, which provides benefits like a 25% safety net on top of your sum insured.
- Contents insurance, which is often bought together with home insurance, helps protect your major household items or personal belongings if they’re lost, stolen or damaged. Just as with home insurance though, it’s important you make a correct estimate of the value of your belongings using the NRMA Home Contents Calculator.
- The most important tip of all: if you renovate your home, purchase new furniture or appliances, or just want to make sure your home and contents are always insured for what they’re worth, review your insurance estimates yearly, do the math and adjust the amount you’re covered for accordingly. Then relax and enjoy the knowledge that even if the worst happens, you have back up.