One in three Australian policyholders is at risk of underinsurance, according to a recent survey. Policyholders who guess the value of their insured items, rather than determining actual value, risk financial loss if they need to make a claim. Reviewing policies and using online calculators to assess value can help prevent underinsurance.

Risk of underinsurance

A recent survey revealed that one-third of Australian home and contents policyholders could be underinsured. According to the report, 32.8% of policyholders guess the value of their insured items instead of accurately determining their worth.

This concerning trend aligns with previous data from the Australian Securities and Investments Commission (ASIC), which estimated up to 80% of Australian homeowners could be underinsured.

In the event of a major incident, underinsured homeowners could be left out of pocket, carrying the financial burden of replacement, repairs or a rebuild.

Increased building costs

Inflationary costs including labour and material have driven up construction prices in recent years. Many insurance policies don’t reflect the current cost of a rebuild.

If the sum insured on a policy doesn’t accurately reflect these rising costs, homeowners may be left covering the shortfall in the event of a claim.

An annual review of insurance policies and tools like online calculators can help assess the true value of property and contents.

Premium hikes adding financial pressure

The rising cost of insurance premiums is another factor adding to the issue of underinsurance. Higher costs are attributed to the rise in weather-related disasters, with claims more than doubling in the past five years.

In the 2023-24 financial year alone, insurers handled $2.19 billion in weather-related claims, including $1.33 billion from the devastating Christmas storms in Queensland, New South Wales, and Victoria.

The Actuaries Institute reports a growing number of Australian households struggling to keep up with the increased cost of insurance. Many may have to reduce their cover, opt for higher excess, or even cancel policies altogether.

While these strategies could save money in the short-term, they leave homeowners vulnerable to financial risks. If an unexpected event occurs, they could face significant financial hardship.

Avoid the risk of underinsurance

Here are some practical tips to help you avoid the risks and financial consequences of underinsurance.

• Assess your insurance needs each year to ensure your cover aligns with your current assets and lifestyle.
• Calculate the replacement cost of your belongings and personal items.
• Use online calculators to estimate the correct sum insured amount for your property.
• Factor in inflation so your policy reflects future replacement costs.
• Get advice from an insurance broker who can help you find the most appropriate insurance cover to fit your needs.

Don’t get caught out of pocket

It’s easy to set and forget insurance. But not paying attention to your level of cover is one way to end up underinsured. The last thing you want is to be out of pocket when it comes time to claim.

If you’re not sure whether your current insurance policy covers the value of what you own, contact Mortgage Express to connect with an Astute insurance broker. You’ll get straightforward, no-nonsense advice about the insurance cover that fits your unique needs.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.