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Home insurance is 'essential'

OPINION: OUR home does more than provide a roof over our heads, for most Australians it’s also our single most valuable asset. That makes home and contents insurance an essential - not a luxury. With the school holidays coming up, now is a good time to re-evaluate your home and contents cover, especially if you’re heading off on vacation.

Research shows that most home owners do have home and contents cover in place. The problem is that we don’t always have enough cover.

A report by the Australian Securities and Investments Commission found high levels of underinsurance – where people insure their homes or possessions for less than the replacement cost. The report noted that up to 81% of home owners could be underinsured by 10% or more against current rebuilding costs. It could see you left out of pocket even though you’ve renewed your policy each year.

Underinsurance tends to be a key problem with a ‘sum insured’ type of policy. These rely on you, the owner, providing a valuation for your home. For most people this can involve plenty of guesswork unless you’re prepared to pay a few hundred dollars for a registered valuer or builder to provide a professional valuation.

A number of insurers feature online calculators on their websites. These offer a guide to your home’s insured value, but they’re not entirely accurate. You’ll also find that the values provided by different sites can vary wildly. Opting for a lower valuation can mean paying less in premiums but you could come a cropper at claim time.

One way to avoid underinsurance is to opt for a ‘total replacement’ policy. Offered by a handful of insurers, such as AAMI, the policy covers the total cost of rebuilding your home to its current standard and quality if it’s completely destroyed - there’s no agreed maximum. The premiums are based on the insurer’s estimates of what it will cost to rebuild your home.

If it has been a while since you last upgraded your home’s value for insurance purposes, it’s worth speaking with your insurer as you could be underinsured. Increasing your home’s cover may not be as expensive as you think. Doubling the value of your policy, for instance, won’t double the premiums.  

Having adequate insurance in place is always very reassuring if you’re going away on holiday. But it’s worth thinking about the plans you have in place for your home while you’re away.

Research group Canstar Cannex warns of the perils of leaving older kids in charge of the family castle while you’re out of town. Most policies do not cover damage done to your home by invited guests, so you may need to establish some ground rules about who comes over before you go.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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