Underinsurance happens when you invest in insurance but its value is not enough to cover your property’s contents and total expenses. Despite its risk, the Australian Securities and Investment Commission revealed that approximately 80% of homeowners in the country are underinsured. It can be risky, especially when filing a total loss property claim when the need arises.
If your property is underinsured, the amount you pay for the insurance policy will not cover the entire expense of your potential loss. Since paying the total amount for repair or replacement of your property can be extremely expensive, you need to avoid underinsurance at any cost by talking to your trusted insurance broker.
Here is some crucial information you need to keep in mind to ensure that you get the correct value for your property insurance.
What Is Total Loss?
This is also known as the “actual total loss.” It means that your property has nothing more to save or repair after an unfortunate event like a fire or natural disaster.
If you have the appropriate insurance, the sums insured can let you afford full reinstatement or replacement of your property.
On the other hand, “constructive total loss” refers to the estimated cost of repairs beyond the property’s insured value. The insurer may rebuild your property or pay out your policy in cases like these. It also talks about the settled insurance claim for the policy’s overall value.
Risks of Underinsuring Property Insurance
Generally, you have underinsured your property if your policy covers less than 90% of the structure and content replacement costs. Therefore, it will put you at risk of getting less than you need if you deal with loss or any damage.
Since your Sum Insured is not enough, you need to shell out some cash to pay for everything not included in your coverage.
How to Prevent Underinsurance?
You will be able to avoid getting a lower insurance coverage value if you can prevent making these common mistakes when applying for insurance for your property, including:
- Forgetting to update the property’s Sums Insured
- Mistakenly believing that the property’s resale value is the same as its construction cost
- Relying on a builder, bank, tax assessor, or real estate agent for the valuation instead of the insurance broker or a quantity surveyor
- Reducing the land value from the reports on financial valuation
- Neglecting to include other elements like landscaping, foundations, driveways, foundations, and fencing during computations
- Ignoring the commissioning costs and real installation while computing the property value
Since insurance could be one of the best investments for your property, you must ensure that you invest in the policy with the best value. You may look for a reliable insurance broker to help you compute the appropriate insurance coverage for your residential or commercial properties.
These professionals will also assist you in sorting different materials and receipts to have a factual basis for your insurance.
Once you get your ideal property value, you can have peace of mind knowing that your property can still be repaired or replaced in an emergency.