Do you have the right insurance cover?
The global insurance market is understandably murky. With products stretching across most facets of life, it is no wonder we are often challenged about a sustainable ‘best choice.’ Yet, since its inception, insurance has been increasingly marketed as a commodity that we all have to have. Faced with several options and growing budgeting woes, it is often considered a grudge purchase driven by a lack of information that means you are simply renewing your policy without taking the time to completely understand your cover situation.
Lack of data insights at an individual or household level has also resulted in the insurance industry remaining outdated with technological changes, and many products offered today are simply, and unfortunately, a variation on past ones.
Regardless of the type of cover, we seem to be repeating mistakes, potentially exposing us to catastrophic consequences if something was to go wrong.
This cycle can, thankfully, be broken. Whether it is home, contents, travel or business insurance, there are so many options, variables, exclusions and conditions, and the wrong choices can expose you to a series of traps. Here are five tips to consider.
- Review your contents and never underinsure
Underquoting is often perceived as strategic, a means to pay a lower initial premium. This is definitely something that needs to be avoided.
When thinking about your level of contents insurance, start by listing all your belongings and working out what it would cost to replace them. An efficient way to do this is by moving from room to room and taking photos of what you own – you may be surprised by how much you have.
If your home or contents is insured for less than their replacement value, it could come back to haunt you, and completely negate the initial saving on your premium.
Most insurers pay up to the sum insured, so if a $800,000 house is insured for $400,000, the insurer will only pay $400,000 if the house is destroyed.
Solution: There are better ways to reduce premiums. You can save money on your home insurance by selecting a higher excess – the part of the claim you must pay. It is also sound practice to discuss possible discounts offered on any combined or multi policies or further offered discounts for having enhanced security features.
- Can you rebuild your home if the unthinkable happens?
There is the frightful reality that even if you think you are insured for the full cost of rebuilding your home, you may not be.
When choosing the level of cover, many people fail to factor in key rebuilding costs such as architect’s fees, engineering and council costs, temporary accommodation and the removal of debris.
These alone can add as much as 10 to 20 percent of the rebuild costs.
Solution: Source out a quote for rebuilding from a professional builder or property valuer. This will help define a more accurate home building insurance amount.
- Check the exclusions…the devil is in the detail
Items you might reasonably expect to be covered in your insurance policy may in fact be excluded. For example, “new for old” contents insurance policies provide full current replacement costs for stolen or damaged items. Be very careful as some policies will not replace new for old if the product is more than 10 years old. Some insurers also exclude soft furnishings in their policies, such as curtains, and contents such as jewellery, art and antiques, furthermore, may be excluded unless you specifically request their inclusion, which in turn is likely to raise your premium.
Some insurers will even require certain valuables to be insured under a separate policy. Valuables likely to travel with you, such as a wedding or engagement rings, cameras and laptops, may not be covered away from the home if they are not listed and valued on your policy.
Solution: Read your policy thoroughly to identify any exclusions, particularly when renewing and when new terms and conditions may apply. You may also wish to ask your insurer, broker or agent to spell out the exclusions before you take out or renew your policy. They might seem acceptable now, but what about when you come to claim? Ask what alternatives are available to you.
- Check your travel cover
Remarkably, despite the constant warnings about taking out adequate travel insurance with the common quote ‘If you can’t afford Travel Insurance, you can’t afford to travel’, people nonetheless opt for travel insurance policies that exclude overseas hospitals. Imagine being denied admission to an overseas` hospital due to your insurance underwriter not being recognised? The associated costs could also spiral into the $1,000s.
Even in countries where Australia has reciprocal rights for Medicare-type hospital cover (such as Britain), you may still end up being treated and charged as a private patient if beds are not available in a public hospital
Solution: Ensure your policy is recognised in the countries you are visiting. The insurance council recommends unlimited cover for hospital and medical costs for several countries, including the US, Japan and Europe.
- Protect your business…and your future
Small business owners are traditionally prepared towards insuring against multiple risks – loss to your physical assets, including buildings, stock, plant and machinery can be devasting.
An important and often neglected further area of coverage, however, is business interruption insurance or simply business income insurance. A recent CGU survey of nearly 500 small businesses found that one in four would not survive if they had to close their doors for three months: it is therefore staggering that businesses do not protect their business continuity.
The survey also found that a quarter of small businesses would have to shut down if they experienced a business disruption such as a major fire or storm and this figure rose to 38 per cent if the shutdown happened during a busy period in the year for that business.
Solution: Many business owners are often overwhelmed at how long it takes to get their business refunctioning after a major disruptive event. It is therefore imperative that when insuring for Business Interruption, you need to specify an ‘Indemnity Period’: this refers to the length of time you wish to insure your business for loss of gross profit.
There are clearly several pressing factors one needs to consider when `dealing` with insurance, whether switching funds or selecting a new policy. Engaging in proactive and thorough behaviours, such as considering the 5 tips detailed above, can help make your insurance journey a more smooth, simple and sound one.