How Much Contents Insurance Do You Need?
Home contents insurance is one of the most important forms of cover for many Australian families, however many people still don’t know how much they should be insuring themselves for.
It’s amazing how quickly the value of your contents starts to grow. At first you think of the big items such as your television, furniture and fridge, but it can be all of the little things that really add up.
The emotional pain of losing some or all of your belongings through theft, flood or fire will be stressful enough, so you certainly don’t need the added financial stress of finding that you didn’t have enough insurance.
What Items Should Be Included?
Contents insurance covers a whole lot more than many people think. It’s not just your electrical equipment and furniture that needs to be protected, and generally if it’s not attached to the home, it will be covered by contents insurance.
Items that people often exclude or undervalue on their contents insurance include clothing, kitchenware, books, DVDs and even less obvious items such as carpets and curtains which are generally considered to be contents rather than part of the building.
Insurance for Valuables & Collectables
Many contents insurance policies will have dollar limitations on certain types on contents. These limits typically apply to jewellery, watches, collectables, DVDs and CDs.
The limits do not mean that you cannot insure them for more, but it does mean that they will need to be specified on the policy. For example if you have a large amount of jewellery, you will likely have to record each item and its value separately on the policy.
Portable items such as jewellery and some electronics can also be insured outside of the home. In most cases this will have to be specified on the policy, and generally you will have to pay an additional premium for this cover.
New For Old Replacement
Almost all home contents insurance policies in Australia are issued on a replacement value basis. This means that your insurance value should be for the new replacement value of each item.
Many people make the mistake of insuring their contents for its purchase price or the amount that they think it is worth second hand. You may have purchased a lovely leather couch for $2,000 ten years ago, but could you replace that couch with an equivalent new item today for the same amount?
Just because you picked up a bargain doesn’t mean that you should insure for less. For example you may have furnished your whole home for $5,000 with bargains picked up from family, but if you could not replace it all for $5,000 today then you need to insure it for more.
The Dangers of Underinsurance
Insuring your contents for less than its replacement value is a lot more dangerous than many people realise.
Let’s say you had $60,000 worth of contents, but decided to save some money by insuring them for only $30,000. In the event that you lost everything, you would only be paid out $30,000. That is to be expected, however there are further consequences.
Using the same example as above, let’s say you only lost $20,000 worth of contents. You may think that this would be fully covered since you had a policy that covers $25,000, but as far as the insurance company is concerned you only insured 50% of your contents.
Because the insurance company has deemed that you only insured 50% of the true value of your contents, they will only payout 50% of your claim amount, which would be $10,000. This would leave you $10,000 out of pocket despite having insurance in place.
For this reason it is vital that you insure the full and correct value of every single item of contents within your home.
This article is about home contents insurance and is general information only. It should not however be treated as factual, as personal advice or be the basis of purchasing any insurance policy. Before deciding on an insurance policy read the PDS carefully and talk to a licensed insurance agent if you need further assistance. MoneyBuddy does not recommend insurance products or provide personal advice in regards to insurance products.