Insurance World

If you’ve ever been tempted to decrease the sum insured for your home and contents in order to obtain a lower premium, think again. You may end up paying a far higher price than you imagined.

Whenever we take out an insurance policy, we are entering into a contract with the insurer. Whether household, motor vehicle, personal accident or any other type of policy, it is a legally binding contract between the insurer and the insured.

For householders, insurance of home building and contents is vital, not merely for peace of mind but to maintain the lifestyle they are accustomed to if the unthinkable should happen.

There are several aspects to consider when purchasing household insurance.

• The insured has a duty to disclose to the insurer anything that they know or could reasonably be expected to know is relevant to the insurer’s decision to accept the risk and, if so, on what terms. For obvious reasons, this is called the Duty of Disclosure.

• Each party to the contract (i.e.: insured and insurer) has an obligation to each other in accordance with the clause of Utmost Good Faith.

Utmost good faith means that in every dealing between insured and insurer, all parties are obliged to act in a totally scrupulous manner – that is: in a spirit of Utmost Good Faith. This clause overrides all other clauses in the policy and is the measure by which the majority of insurance disputes are settled.

• The sum insured is a major consideration when taking out an insurance policy. It not only affects the cost of the premium but the insurer’s liability if a claim is made. For home building and contents insurance, the sum insured is, arguably, the most crucial aspect and the importance of “getting it right” cannot be overstated.

According to The Insurance Council of Australia, approximately 43 per cent of home building and/or contents policyholders are significantly underinsured.

Determining the Sum Insured

For many people, determining exactly how much to insure their home building and contents for is a daunting task. It needn’t be, however, with a few guidelines to follow.

Most insurance companies offer replacement cover for household policies – or “new for old” so it is important to insure the building and contents for their full replacement value, not their value after depreciation.

• Home building insurance: The sum insured is based on the total cost involved in rebuilding the property to its original or a comparative state. In addition to the actual building expenses, this includes the costs of demolition and removal of debris as well as any associated engineering, architectural and council requirements. Consultation with a professional builder or property valuer is recommended.

• Home Contents Insurance: The most effective way of determining the sum insured for contents insurance is to conduct a room-by-room inventory. Simply go into every room, listing the individual items in each. Next to each item, write down how much it would cost to buy that item brand new.

Most insurers provide literature, online information and calculators to assist with determining sums insured.

As previously stated, the sum insured determines the insurer’s level of liability in the event of a claim. If the property is underinsured, the result can turn an already traumatic event into something more devastating.

Some insurance policies contain an “average clause” or “co-insurance clause.” What this means is that in the event of a claim, if a property is found to be significantly underinsured, the liability of the insurer will decrease commensurate with the level of underinsurance.

Let’s look at a hypothetical example without the average clause:

A home is gutted as a result of bushfire. There is nothing retrievable. The homeowner had insured the building for $200,000.00 and the contents for $10,000.00. When assessors inspected the ruins and collected all the information about what was lost, it was determined that the actual replacement value of the building was $400,000.00 and for the contents, $20,000.00.

The insurer, however, was only obliged to pay a total amount of $210,000.00, less any excess, and did this. The insured could not rebuild for the amount of the claim payment and had to settle for a much more modest home, fewer household contents and a significantly reduced standard of living.

Let’s look at another scenario with the average clause:

During a wild storm a tree falls onto a house, damaging the roof and part of the living room. Again, the building was insured for $200,000.00 and the contents for $10,000.00.

As in the previous example, loss assessors deemed the building’s actual value to be $400,000.00 and that of the contents, $20,000.00. The cost to repair the living room and roof is $30,000.00 and is well within the sum insured. However, the insurer was only obliged to pay an amount commensurate with the level of underinsurance.

The underinsurance level of the building was 50 per cent and so the insurer paid 50 per cent of the repair cost – i.e.: $15,000.00. Contents to the value of $8000.00 were also destroyed during the incident, however, the insurance payment, under the average clause, will be just $4000.00.

In total, the insurer paid $19,000.00, less any excess, when repairs to the building and replacement of contents actually cost $38,000.00.

These two examples highlight the importance of placing the correct value on home building and contents insurance policies and how decreasing sums insured to save a few dollars in premium costs is really quite a gamble that could have disastrous effects.

It far better to know that should an unfortunate incident occur, we can recover what is lost.

After all, isn’t that what insurance is all about?

The reason why automobile insurance has become distinctive in its nature, can be simply stated by the fact that a victim might start paying much higher premiums for acquiring a costly claim but he or his family might still need to pay with their lives someday.

Research: Ever since the introduction of automobiles into the modern world, Automobile Insurance fraud has turned out to be one the most organized crimes amongst a large variety of insurance scams of its kind. There are some common precautions that enable you to be aware, and protect your life from being butchered by a scammer. While taking precautions, you might also need to carry on a thorough research of the different forms in which auto insurance scams appear in today’s world. Different instances of auto insurance scams show, how drivers might stop their vehicles in front of your car, deliberately confusing you to commit a mistake.

Foul Plays: Some of them might even pose friendly to you and even pretend to be innocent to have caused a rear-end fault intending to save your life. Such scam drivers would often make good money out of vehicle damages as also procuring large sums faking medical injuries. Irrespective of an accident being staged or not, these scam drivers would carry their vehicles into a different location and inflict heavier damages to their vehicles. This is done with the sheer intention to pretend as if the damages had been inflicted during the course of the original accident.

Smiling Faces: Sometimes you might come across people who pose as scam helpers, thereby inviting you to drive into traffic and commit the mistake of getting crashed by them. You need to be too careful at that, as these scam helpers would never own up their crimes while filing a claim. When in times of need they might even drive you to find an automobile repairing shop, a lawyer or a doctor where in all of these people are involved in a scam. In the course of their plan, the auto repairing shop might charge much higher rates from you while their counterparts would surely formulate lies to collect more from your insurance.

Henceforth, in today’s world it has become absolutely important to get equipped to face such crimes at any time and place. To avoid such circumstances, every time you are driving you need to remain cautious about certain things. You need to be absolutely alert as to whether a scam driver is following you or might be observing you driving down for quite some days just to track down the pattern of your driving and your habits. In such cases you just need to make sure that you leave plenty of space between your car and the car in front of you, in order to ensure an instant stop when needed.

Incase any untoward incident takes place, just make sure that you take down all the vital in formations relating to the other car involved in the accident, the event itself, and especially particulars related to all the individuals present in the other car. If its possible, maintain a throwaway camera at your car to record the damages caused to both the vehicles. That is why its all the more important to ensure that you have enough space to move out and let other vehicles pass. You would also need to make a note of an overview of such an event that suffices to express your feelings in a better way while you would narrate the event to your insurance service provider.