Insurance

Tragic events in Queensland, Victoria and Western Australia in 2011 highlight the need to protect assets and possessions against disaster. But simply holding an insurance policy is not enough: rejected flood claims demonstrate that you need to know exactly what the policy covers and, more importantly, what it doesn’t.

The first step to conducting an audit of your existing insurance is to read all your policies. What you’re really looking for are exclusions – and they’re easy to find, says Emilie Watson, from industry organisation the National Insurance Brokers Association, as they’re all in the first few pages of the product disclosure statement.

If you have any questions, ring your insurance company or a broker. If you have a scenario in mind, ask what would happen under the terms of your policy. If there are surprises, it’s time to take advice or shop around.

Be careful about underinsuring. Using an example from the Insurance Council of Australia (ICA), if a home on the outskirts of Perth is insured for $200,000 and is destroyed by fire but the building and replacement costs are $350,000, this home owner will have to come up with another $150,000 to replace the property.

With home contents, suggests John Price, ombudsman for general insurance, use the ready reckoner offered by most insurers to do a review of what you’ve got in each room and what it would cost to replace. Keep a list of the dates of purchase, keep receipts and take photographs.

Here are the factors to check in your policies

Defined events: standard building and contents cover will insure you for specific situations such as flood, fire and storms. Most insurers don’t automatically have flood cover; others have it as an optional extra.

Building insurance: the three main types of cover allow you to choose a sum that will cover the cost of rebuilding your home; using the same sum but adding in a margin of, say, 25 per cent; or to choose a policy that will cover all replacement costs. The last is obviously more expensive but better than having a fixed price, says Price, as the risk of underinsuring is less. Don’t forget that after a major event, tradesmen may be scarce and this will push up building costs.

Technicalities: according to many insurers, flood damage is when water comes into a home from a natural watercourse breaching its banks. Storm damage, on the other hand, is damage from rain. If your policy – like most – does not include floods and a lot of water got into your home after a storm and you were near a creek or river, it would be open to question whether it was rainwater or a local drain getting blocked, says Price, or because the local creek or river had burst its banks. In terms of storm damage, look at the wording of a policy – if you have damage to your roof after a storm, an insurer could argue the damage was caused by the roof being in poor condition rather than by the storm.

Away from home: check whether a policy offers cover for valuables you take out of the home. If it does, suggests Price, investigate whether there are conditions such as items not being covered if they’re left overnight in your car. Watson also suggests checking your policy for items such as outdoor furniture that are not under lock and key in the house to see whether they are included in your cover. Some policies have automatic cover damage to personal effects away from home of up to $6000 – what does yours offer?

Sublimits: in a general policy under the various defined events, says Watson, there will be so-called sublimits on the maximum payouts for items such as works of art or antiques. The same applies to accidental damage cover but premium policies will automatically include, say, $20,000, while standard policies will have limits closer to $5000. If you have specialist jewellery, adds Price, specify it and make sure you keep proof of purchase and get a valuation certificate. If you have valuable items, increase their cover as their value appreciates. “If you’re cleaning a valuable lamp and knock it over, breaking it, you may not be insured if you haven’t increased the cover.”

Extras: some policies offer automatic free cover for renovations if the total cost is under $10,000 while others may extend this to $20,000.

Accidental cover: if you want to be insured against accidents such as dropping a pot on to a glass stovetop and cracking it, make sure your policy includes accidental damage. Most home and contents standard cover does not include this.

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