Floods and wild weather highlight risks of underinsurance

Financial experts say recent flooding on the east coast is a timely reminder for families to check up on all their premiums.

Financial experts say recent flooding on the east coast is a timely reminder for families to check up on all their premiums. Photo: TND

Devastating floods and scenes of Australian beaches eroding away are reminders for households to ensure they have adequate insurance, financial experts say.

New research from Finder found 46 per cent of households would be uninsured in the event of a flood and one in seven had no home and contents insurance.

Finder money specialist Taylor Blackburn said families should find a new quote or top up their existing premiums before another summer of volatile weather.

“We’re in for a wet summer so if you’re yet to take out home and contents insurance, now is the time to do it,” Mr Blackburn said.

He also stressed households should be thorough in documenting any damage incurred from freak weather events or other accidents.

“Take photographs and document everything you can,” Mr Blackburn said.

“It’s also vital to prove you took measures to prevent any damage. If you’ve had gutters cleared, removed low-hanging branches from around your house or repaired roof leaks, give this information to your insurer.”

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Finder says Australians should consider topping up their premiums. Photo: AAP

According to data from the Insurance Council of Australia (ICA), floods have cost insurers $5.6 billion in damages over the past decade.

ICA CEO Andrew Hall last month told a roundtable into strengthening homes against natural disasters that insurance was a crucial protection for families’ most expensive asset.

“Insurance prices the risk to any asset, and ensuring those risks are mitigated to the best of our ability is key for both protecting the home and protecting their financial wellbeing,” Mr Hall said.

Underinsurance could lead to a costly ‘double whammy’

Paramount Financial Solutions adviser Wayne Leggett said avoiding being underinsured – whether for home and contents, life or private health insurance – is crucial heading into the new year.

Coupled with the uncertainty stemming from the recession, the likelihood of more volatile weather over the coming months is enough reason for households to ensure they have adequate cover, Mr Leggett said.

He said households will be hit by a hip pocket “double whammy” if they are struck by a natural disaster and have inadequate cover.

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New South Wales has suffered days of heavy rainfall. Photo: AAP

“If the insurance company determines you were paying less for coverage than required because the value of what they were insuring was in excess of the amount selected, the insurance company may want to keep the payout,” Mr Leggett told The New Daily.

“So not only are you not getting the full payout of what you had, which was technically less than you needed anyway, you might not even get the full sum insured, you might only have half of it.”

Mr Leggett noted, however, that households had legitimate affordability concerns, with the pandemic-induced recession causing families to reconsider the value of their insurance.

This problem is most notable in the private health sector, with the proportion of people aged 20 to 29 that have general health insurance falling 5 per cent over the past three years, according to financial regulator APRA.

How to make sure your home is not underinsured

Mr Leggett said when working out much cover to take out, households should use the value of their home as a guide – not the value of their home and land.

He advised bringing in a property valuer to provide an accurate assessment of the value of their home. And he said households must avoid the mistake of not covering all of their contents.

“The issue there is it could lead to what the industry calls coinsurance, where the insurance company argues that a household has $60,000 of contents and it’s only paid $30,000 in insurance,” Mr Leggett said.

“And what insurers would often say is because they had only paid half the premium, they’ll only pay half the claim.

“So if you have a total write-off on your valuables and personal effects, you may only get $15,000 back instead of the $60,000 you needed.”

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