By Allison Tait, ninemsn Finance
Flood, fire, hail, earthquake, cyclone … when it comes to natural disasters, Australia is capable of pretty much anything. And they can cost us plenty. Cyclone Tracy in 1974 had a clean-up cost of $4 billion. The Newcastle earthquake in 1989 cost $2 billion. The devastating 2009 Victorian bushfires cost $1 billion and the process of recovery is still underway.
Unfortunately, climate change scientists tell us that the frequency and intensity of weather-related disasters is likely to increase. And this means that we all need to batten down the hatches.
One way to do this is to organise insurance, and many of us are religious about sorting out our home and contents policies each year. But, according to the Australian Securities and Investments Commission (ASIC), recent studies suggest that anywhere between 27 percent and 81 percent of Australians are underinsured. That means that their homes are insured for less than 90 percent of the cost of rebuilding it up to 59 percent have only insured their homes for 70 percent or less of the cost of rebuilding. That's a big shortfall to make up if you've just lost everything.
Even if you do feel you're 100 percent covered for building costs, are you covered for everything that nature can throw at you? Is a flood covered in the fine print of your policy? Fire? It's important to get it right from the start.
I'm choosing a policy, what should I be looking for?
Guidelines from the National Insurance Brokers Association (NIBA) suggest keeping an eye on these important points:
- policy cover;
- sublimits (a limitation within the policy on the amount of coverage available to cover a specific type of loss);
- available options (flood cover, full accidental damage, Australia-wide cover for contents, etc);
- excess (standard and higher voluntary excesses will decrease premium); and
- premium (the cost of the policy).
"The best advice we can give consumers is to shop around," says a spokesperson from the Insurance Council of Australia (ICA). "Under Australian law, insurers must make available a product disclosure statement (PDS) to ensure terms and conditions are understood by the policyholder."
To ensure that you have received one, policy holders are usually required to formally acknowledge receipt of the PDS. So there's no 'oh, it must have got lost in the mail' to fall back on.
"Always read the PDS before purchasing a product to know the terms of the policy and claim entitlements," the ICA spokesperson says. "There have been cases where policy holders didn't read the PDS and mistakenly assumed they had cover."
Overall, however, the ICA reports that most insurance claims are paid. "According to the Financial Ombudsman Service FOS, more than 98 percent of insurance claims are paid without dispute."
Do I need specific fire or flood policies if I live an area prone to that kind of thing?
"Generally, fire cover is included as part of property policies, unless in an extreme circumstance where the insurer may have put a special exclusion or condition on the risk," a spokesperson for NIBA says.
"Automatic flood cover is now available through a couple of main insurers in Australia, or it may be purchased as an additional option for additional premium (rates will depend on the area). Having said that, there are still insurance companies that do not offer this cover, so it is a standard exclusion in their policies."
So read the fine print carefully or get some professional advice.
What does it mean if my area is declared a state of emergency?
Firstly, insurers will declare an embargo for the period of time that the threat is imminent. So if you do not have a policy in place at that time, you won't be able to purchase one during the embargo.
Afterwards, the ICA coordinates industry and government liaison during the recovery phase of the event, which is designed to ensure the fastest possible response for the community involved.
Where can I find help?
The ASIC website (www.fido.gov.au) has lots of general tips and advice, and the Insurance Council of Australia (www.insurancecouncil.com.au) has a whole section dedicated to education and information for consumers.
It may be best, however, to seek professional advice. "There are so many different insurance products out there, the variance in cover is too great to generalise," the NIBA spokesperson says. "An insurance broker can save you time, money and worry. It doesn't necessarily cost more, and the broker works for you, not any particular insurance company."
Visit www.niba.com.au to find a broker near you.
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