Over the past year, the cost of pretty much everything has gone up. Inflation is still rising at around 7% per month, way ahead of the Reserve Bank’s target of 2-3% – and, while it means we have significantly less money in our pockets every month and need to budget carefully (5 tips to make your money go further), it also means underinsurance becomes a significant risk.
Here’s what you need to know.
What is underinsurance?
Underinsurance is basically when the amount of insurance you have isn’t enough to replace what you’ve lost.
What is an example of underinsurance?
Think about your home and contents insurance. You might have the building insured for $500,000, which might be accurate in terms of either the price you purchased your home for or the amount left on the mortgage.
But in reality, the amount you have your home insured for should cover the full rebuild costs if your home was destroyed by a bushfire, for example.
The cost of builders has risen significantly over recent times, as has the cost of materials – so what $500,000 would have bought a year or two ago will be very different to what it can today.
In the bushfires of 2019/20, four out of five affected homes were underinsured – and with the inflation we’ve seen over the past 12 months, that figure is likely to have risen.
It’s not just buildings that can be underinsured. Your vehicle will likely cost more to replace than it would have 12 months ago, likewise your television set.
Your life could be underinsured too. If you have life cover or income protection insurance, make sure they’re up-to-date and reflective of today’s values.
What can you do to ensure your insurance is up-to-date?
While we’re all very conscious of where we spend our money today, it’s important not to sacrifice or overlook the important – and insurance is one of those things. If disaster or illness strikes, you need to have the right policies in place to look after your family and loved ones.
The team here at Fennell West can help you assess your insurance needs, and make sure you have the right cover for today – and not for 12 months ago.
How can you save money on insurance premiums?
As well as making sure you’ve got the right cover for today, we can help you ensure that you’re paying the most efficient premiums, too. For example, if you increase your excess (the amount of money you’ll pay towards a claim) or your waiting periods (the time you wait until you make a claim), you can reduce your premium as you’re taking on more of the risk.
This is particularly useful for ‘big’ insurance coverage, such as income protection or your home insurance.
Final thoughts
“It’s common for people to take out insurance and think ‘that’s it, we’re covered,” says Joel Bateman, Financial Adviser at Fennell West.
“And while you are covered, it may not be the right cover for today. As well as prices going up meaning you don’t have the same financial protection, your circumstances may have changed. You might have had another child, had a pay rise or bought more property – whenever your life changes, it’s smart to review the protection you have in place, too.”
The team at Fennell West can help ensure you have the right insurances in place, to ensure the wealth creation strategies you’re working towards are protected. Call 03 5232 1661 or email [email protected] today.
