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COPYRIGHT 2003 Australian Consumers' Association
Many of the people who lost their homes in the recent bushfires in the ACT, NSW and Victoria at least had the peace of mind that their properties were insured. The process of actually making a claim under their building or contents policy might, however, have revealed some surprises.
On the surface one policy looks much like another, but read the fine print and you'll find some major differences between the types of 'event' or 'damage' covered. Some policies are less generous than others. See Averaging clauses, page 30, and Policy weaknesses, page 31, for the deficiencies we found in some.
NEVER LEAVE IT TO THE LAST MINUTE
Jim and Jane's home backs on to a national park. They love the location but were a little hot under the collar last December when bushfires were moving towards them from three directions. The temperature went up a few degrees when they realised they'd forgotten to insure their contents.
"Our home buildings were insured but we'd never bothered with the contents," Jim explains.
"I was on the phone madly attempting to get a cover note. Some of the big insurers were refusing to issue new policies at all. Others were prepared to issue a cover note but had a 72-hour claims embargo for our area.
"Fortunately the fires didn't come anywhere near our home but we'll never leave ourselves that exposed to such a big risk again."
ARE YOU UNDER-INSURED?
Jim and Jane aren't unusual. Non-insurance and underinsurance are significant problems in Australia. The latest figures from the Insurance Council of Australia (ICA) indicate that 25% of the population have no home building or contents insurance at all. Of those that have building insurance, 27% don't have adequate cover, while the ICA's best estimate for contents is that 35% of those with cover are under-insured.
It's worth checking that your policies are current and that they give you sufficient cover. Review the replacement value of your buildings and contents annually.
When deciding how much building cover you need, include the cost of removing debris from the site and architects' fees--the total could well be much higher than the current market value of your buildings alone.
Ask your insurance company for any guidelines it has to help you value the replacement cost of your buildings and contents or use our Home and contents insurance worksheets at www.CHOICEextra.com.au.
AVERAGING CLAUSES
If you don't buy enough insurance to cover the replacement cost of your buildings or contents you're exposing yourself to financial risk. All policies state that the maximum they'll pay is your sum insured. If you've only insured your home building for $140,000 and it costs $200,000 to rebuild, you'll have to find the extra $60,000. That's clear enough.
However, eight of the policies we assessed have an additional restriction if you're under-insured, called an 'averaging' clause. If your home buildings or contents are insured for less than 80% of their replacement value, COMMINSURE (Commonwealth Bank), NRMA (its Queensland policy only), RAC, PACT (building cover only, not contents), SGIC and SGIO may use the averaging clauses in their policies to limit the amount they pay you, even for a partial claim.
For example, say you insure your home contents for $50,000 when, in fact, it would cost $90,000 to replace them. Even if only $27,000 worth of your contents were stolen, you still wouldn't be paid the full amount if you were under-insured and there was an averaging clause.
In this instance the insurer would divide the sum you insured for ($50,000) by 80% of the full replacement value of your contents ($72,000), then multiply that by $27,000. On this basis the insurer would only pay $18,750 and you'd be over $8000 out of pocket.
This condition is unfair and should be removed from all policies. We penalised averaging clauses in our scoring, though some policies in our What to buy tables scored high enough for other reasons still to be recommended. We'll be campaigning to see averaging clauses removed from all policies.
A variation on an averaging clause is SUNCORP METWAY's indemnity clause. With its policies, you don't get new-for-old contents or building replacement cover if your sum insured is less than 85% of the real replacement value. Instead you're paid a depreciated value. For contents, this is based on the age of the product to be replaced; a home and land valuation formula is used to determine the amount paid for building claims.
ACTS OF TERROR
Who would've ever bothered to check that their house would be insured against loss or damage caused by acts of terrorism before the Bali and New York tragedies? In the current climate, it may be worth a second glance. Insurance companies definitely think it's important. Some have been rewriting their policies to exclude cover for terrorism. Others think there's a marketing advantage to be had from offering cover for...
Read the full article for free courtesy of your local library.
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