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Avoiding Underinsurance - Why your Property Asset Values Need to be Reviewed
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Are you an SME owner who works from home? Would the loss of your home also impact your business? Unfortunately, many homeowners are underinsured, which means that claim settlements and repairs can be delayed. Also, many home insurers don’t automatically cover business equipment, and you will have to ask your insurer to add the additional cover. So, being insufficiently or underinsured could significantly impact you personally and your business and clients.
Underinsurance is more common than you may think in Australia. Up to 23% of people have no home or contents insurance, and of those, 80% have an inadequate cover. So let’s take a look at what it is and why it happens, its consequences and how you can protect both your home and business from the financial and reputational exposures of underinsurance.
What is Underinsurance?
First of all, before you can know if you’re underinsured, you have to understand what underinsurance means.
If your insurance policy doesn’t cover the current cost of rebuilding or replacing the contents with new items, then you're underinsured. As mentioned, this is a very common problem in Australia, and it’s been an ongoing issue. For example, a report prepared for the Insurance Council of Australia (ICA) in 2013 stated that 83% of homeowners and renters were underinsured for their property and contents.
In 2021, another ICA report found that 23% of Australian households do not have building or home contents insurance, with many others actually insured.
In recent years, we have experienced bushfires, floods and rapidly rising rebuilding costs, up 8% in the past year alone. This is due to the housing renovation boom and increasing materials costs due to Covid-related supply chain delays. Underinsurance has always been a risk. Combined with the lack of insurance for home-based business equipment, it can result in even larger financial risks for many SME business owners.
Why are People Underinsured?
There are many reasons why homeowners are underinsured. Some people don’t have enough home insurance simply because they underestimated the rebuild costs and subsequently have not reviewed the insurance cover. There are lots of free online calculators available that can help.
Other issues include not including recent renovations, extensions or additions. Some people are also underinsured to reduce their premiums, a financial gamble with often the persons largest asset.
Small Business Insurance can provide cover for your business’ premises and contents, against loss, damage, theft or financial loss from an insured interruption to your business.
Tax Audit Cover for Small Businesses and Individuals.
Bill Cover will take care of your bills, so you can take care of yourself! Bill Cover will pay a fixed monthly benefit or the total of your monthly bills (whichever is the lesser) for up to twenty-four months if you are unable to work due to injury or sickness. In the event of a claim, Bill Cover can be used to help pay for your business or general living expenses such as electricity, gas, gym membership, mortgage or rent.
Other issues include not including recent renovations, extensions or additions. Some people are also underinsured to reduce their premiums, a financial gamble with often the persons largest asset.
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In general, most homeowners tend to underinsure their homes due to a lack of information about the current costs of rebuilding and replacing their homes.
What are the Consequences of Underinsurance for SME Owners?
The biggest issue with underinsurance is when your policy’s coverage level is less than the value of your claim. Your insurer will then only pay part of your claim, leaving you out of pocket and having to find the balance. This will delay the rebuilding or repair of your home at often the worst time, also impacting your business.
How Can You Avoid Underinsurance?
The best way to avoid underinsurance is to choose a reputable insurance adviser to discuss your personal situation and goals. They can also arrange to have your home professionally valued and ensure that the sums insured are calculated correctly.
The sums insured should be based on the cost of rebuilding your property and not on the purchase price or market value. You also need to consider the location of your property. Is it outside the main town? Is it on a block difficult to access? Also, the cost of demolition, whether it has asbestos and any architect and government fees.
In Summary
All of this means that avoiding underinsurance and having the correct insurance is the best way to keep your personal and business life on track. In the event of substantial damage to your home, you want to be in a position to have repairs or rebuilding authorised quickly while looking after your clients.
To ensure that your sums are insured and the cover is appropriate and sufficient for your needs, talk to one of the advisers at Insurance Advisernet. Visit our website or contact us for more information on underinsurance and insurance advice.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
All information above has been provided by the author.
All information above has been provided by the author.
Insurance Advisernet, ABN 15 003 886 687, AFSL 240549
This article originally appeared on Insurance Advisernet News and has been published here with permission.
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