Q's about contents insurance

[Astrid]

What is the problem with underinsuring? Isn't that just my problem? If I have $100k worth of items, but only insured for $80k (for example), then that is my loss. I have not come across claims being denied based on under insuring, only when people have tried to claim more than what they actually have. BTW we are fully insured, except the for the $1000 cap on DVDs, that wont cover the replacement of all of them. House rebuilding is unlimited

[Jennifer13]

What is the problem with underinsuring? Isn't that just my problem? If I have $100k worth of items, but only insured for $80k (for example), then that is my loss. I have not come across claims being denied based on under insuring, only when people have tried to claim more than what they actually have. BTW we are fully insured, except the for the $1000 cap on DVDs, that wont cover the replacement of all of them. House rebuilding is unlimited

It varies from insurer to insurer, which is why it is very important to check with your insurer.

I could only find one quote that I've posted here from an insurance company:

What happens if I'm under insured?

When you submit a claim and are under insured, the principle of average will be applied to compensate you partially for your loss.

In accordance with the average clause in your policy, the extent to which you are under insured will be applied to your claim. Suppose your home or house contents are insured for only 50 percent of the replacement value and you submit a claim for $20 000. Only 50 percent of the claim, that is $10 000, will be paid out.

The home loans department of your bank or an expert in the building industry will be able to value your house. [Insurance company] suggests that you ask a reputable dealer to determine the insurance value of your vehicle.

What happens if I'm over insured?

When you submit a claim and are over insured, [Insurance company] will only pay out the replacement value of the insured items.

Say, for example, the contents of your house is insured for $200 000, but it is only worth $100 000. Burglars clean out the house and you claim for the full sum insured. [Insurance company] will only pay out $100 000.

What that means is if you've only insured for half of your contents, you don't get to nominate which of your contents is fully covered. So if only some of your stuff is stolen (TV, DVD, stereo) and the assessor calculates that your contents cover is only for half of what you have, you only receive half the value of what was stolen. Which means you wouldn't be able to replace what you've lost with the equivalent at today's value. So it might not be an issue if you lose ALL of your contents, but actually, it's more likely that you won't lose everything and will have to make a claim for only certain goods, even in a fire. (I should clarify too, that I believe some companies do not pay out the full amount insured if you lose everything and it is considered under-insured. Check with yours.)

Does that make sense?

[Indadhanu]

I thought you weren't allowed to 'overinsure'...?

[Jennifer13]

You can theoretically, within reason, but you won't receive the full amount if you try to claim for everything. So if you say your contents are worth $100K (and you pay your premium based on this) but then the house burns down and everything is only valued at $75K, then that's all you'd get. So it's be a bit silly to pay a higher premium when there's no way you'd get away with receiving what you've asked for.

And since you do have to itemise everything it's actually very hard to try to claim for something that wasn't there. Items of significant value on their own do need to be specified in the policy (hence the caps on things like DVDs, etc, too, to stop ppl trying to say they had a $30K DVD collection to 'make up' the full amount).

Overinsurance is more of an issue though with house or business insurance, rather than contents. By the far the majority of ppl are under-insured, since they don't change their policy when big new items are bought or review it every year it falls due. Or they don't take into account that prices go up with inflation.

[Indadhanu]

But then if you overinsure you're more likely to get a good amount back right? But if you insure for the 'right' amount or less you end up with less if you ever need to replace everything...?
Thats seems like a rather large loop hole...?

[Jennifer13]

The thing is, what most people would consider an exaggeration on their contents is probably more realistic than they think. So yes, I think you would be better off almost over-insuring, 'cause then at least you would guarantee replacement value for your belongings.

We usually don't realise just how much it would cost us to go out and buy new things for what we have.

The thing is, an assessor who comes out and values your goods (once they've been lost/damaged) does it every day and they will apply what they consider market value. If you aren't used to valuing, then your estimate is less likely to be correct. Just because you bought your fridge for $1K, for eg, on sale and got a discount two years ago, doesn't mean that the value of it should go down as $1K! To go and buy the equivalent fridge not on sale as soon as yours is gone might cost a lot more.

Use the online insurance estimators/calculators. Don't leave anything out.

[Karina]

I know with the under-insuring thing it causes issues for huge claims. I work for an insurance company and there was a big pub in QLD that got totally wiped out with the cyclones in 2006 and they were really under-insured. I remember hearing the claims person saying that they didnt pay out the entire claim because of that. I'm talking about a building that was in the $millions to replace/rebuild though - one of those quite large old 2 storey heritage style pubs with a few bars, rooms, and accommodation. Its called averaging provision. Not all insurance companies have this as a condition though, it depends on the underwriters rules so you really need to ask them what would happen in a situation like this. I'm not sure if it would apply to a smaller policy for, say, home contents.

If you overinsure, you can only get back as much as what it costs to replace/reinstate/rebuild what you lost (depending on exactly what your policy is for - replacement and reinstatement are differnt things). Depend on what the assessor or claims adjuster says. Its better to insure your contents for what it would cost if you had to replace it (buy a new one). Like, we've been given things (my mum bought a laptop for me) so that was no cost to ME however, if it got stolen or damaged because of a fire or whatever, it would cost me to replace it, so I'd have to increase my contents to account for that.

[Astrid]

Thanks for that Jennifer. I would call my insurer to clarify what they do in a total loss, but want to wait for a bit so they have time to deal with claims with everything going on. I think DH wants to up it anyway. I just find it a bit silly to insure items that I would not replace, but if I have to insure them in order for everything else to be paid out, then I will. I just don't want to be forced to replace some items (old PC games), in order for the rest of the claim to be paid (I hope I am making sense). I know all about insuring for replacement cost btw.