There are a number of reasons why your home might be underinsured, unfortunately you normally won't find out until it is too late.
Generally people have inadequate cover because:
- They have no idea of the cost to rebuild their home.
- Building costs have changed dramatically and they are not prepared for it. This is especially relevant when a natural disaster occurs and the demand for builders increases dramatically, outstripping supply and causing significant, short term, price rises.
- They have had their insurance policy for a lengthy number of years and just kept rolling it over.
- They've made improvements on the house but haven't adjusted their insurance policy to reflect this.
There is a new product in the market, which takes the pressure of underinsuring off the owner and places it back with the insurer - Total Replacement Cover.
By taking out total replacement cover you are covered for the damage or loss to your home buildings whatever it costs to repair or rebuild them. So if your house is insured for $300,000 but the house costs $350,000 to replace, the insurance company is responsible for the extra $50,000.
Currently the only companies in Australia offering this type of insurance are AAMI and CommInsure, the insurance arm of the Commonwealth Bank.
Sources: ASIC, AAMI, Commonwealth Bank
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