Inflation has been a growing concern not only for Mansfield residents but Australians nationwide over the past few years. Virtually all Aussie households have tightened their budgets in an effort not to leak money during our ongoing cost of living crisis. Beneath this financial anxiety, however, another threat silently grows: underinsurance.
Underinsurance is a byproduct of a few things: a lack of awareness by a policyholder, an outdated policy, and, of course, rising costs that go on to affect your premium and excess rates. Whilst rates of underinsurance are growing in accordance with interest rate climbs, you can still reduce your risks of being underinsured. Taking the time to review your policy offerings, shop around for good deals, and choosing all-inclusive policies that provide greater value are all steps in the right direction.
If it’s been an age since you last read your current insurance policies, read on as we unpack underinsurance and how to address it.
Underinsurance: a definition
Underinsurance refers to when your insurance policy doesn’t provide adequate cover (i.e. the cost of replacing what you’ve lost (or rebuilding what you have) is greater than what your policy covers).
How does this happen? Inflation. To account for inflation, labour (mechanic) costs, material or parts costs, and any other cost that’s involved with your insurance claim increase in price since you first took out your policy. This means that the $100,000 car insurance policy you’ve taken out now falls short of the $150,000 bill to replace your 1977 Holden Torana.
Bundled and all-inclusive: a potential solution to underinsurance
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Australian insurance providers are aware of the elevated risks of underinsurance, which is why they’ve started offering their policyholders the option to bundle their different insurance policies together for bulk savings, or to secure all-inclusive policies that operate in a similar way.
This model of all-inclusive insurance cover is being adopted with great success and consumer satisfaction across some providers. A good example here is comprehensive car insurance which can include windscreen glass cover and allows customers to use their own choice of automotive repairer, all for no extra fees. This added flexibility provides greater autonomy as well as peace of mind, providing Complete Care customers with added spend value across their household's insurance costs.
Other methods for how to avoid underinsurance
It’s important to note that you’ll only feel the effects of underinsurance when you make an insurance claim. Like trading on the stock market, you only lose money when you sell shares that have dropped in price. Unlike the stock market, inflation doesn’t revert the following week or month; instead, it continues its steady incline.
The good news? Avoiding underinsurance isn’t complicated. It just takes practical steps, steps any Aussie consumer can make. Here are just a few methods to help you avoid underinsurance:
Review your policy regularly
Annually (or bi-annually) is sufficient, though it’s up to you. Just make sure your policy reflects current market conditions
Seek coverage using accurate financial assessments
With insurance, there are no prizes for guessing. Get a professional assessment of the items you want to insure. That way, no surprises will be waiting for you.
Don’t assume you’re adequately insured
It’s easy to think home insurance covers everything in your home. To be fair, it should, but this isn’t the case. Know what your policy covers and what it doesn’t cover, and make the adjustments you need.
Make your cover inflation-proof
Yes, you can do this. Some policies include automatic indexing to keep your coverage in line with inflation.
Underinsurance and inflation: an unhealthy relationship
Remember that inflation affects everything. Some things you notice; the price of milk, the price of a haircut, the price of a pint at your local pub, and even your rental rates. And some things you don’t notice as readily – like the price of your insurance, should you need to make a claim.
Inflation is caused by things like imbalances in supply and demand, supply shocks, and consumer expectations. Whatever happens to cause inflation at any given moment, the effect is always the same: a rise in costs
This is where it gets tricky. Insurance policies typically aren’t documents that consumers constantly revisit. So if you took out home insurance a decade ago and have not had to make a claim in that time, there’s a strong chance that your policy will fall short of covering everything on your policy. What does this mean? At worst, you could find yourself paying thousands out of your own pocket to cover a major incident.
So alongside staying spend-savvy when it comes to finding the right insurance policies, it’s also essential you keep yourself in the loop with interest rates and how they may affect your policy premiums and excesses.
Stay informed and attentive to avoid risks of underinsurance
The key takeaway? Be thorough with your insurance policy reviews. Scrutinise every detail of your policy, and scrutinise regularly. You don’t need to run a comb through your policies every week. Once or twice a year, though, will ensure you identify where your current policy needs refinement.
We said at the start that prices usually move in one direction only, which means there’s nothing to gain from choosing a policy and hiding it away, never to be looked at again. As long as inflation exists, underinsurance will, on some level, also exist. By keeping on top of your policies, you can avoid underinsurance altogether. And if the worst-case scenario happens, you’ll have the right cover to get back on track.
