Not motoring..but it is important...are you underinsured?

[Peterng]

The other night after a watching a BBL match and having a few beers as one does, when one is watching one of these matches...well I do..it was about 1030pm..and I didn't feel like heading off to bed. So I channel surfed...a male thing to do...when one is bored with what TV has to offer these days...anyway..I hit the ABC news channel and a segment on the Bushfires and what this will mean for people who are under insured. I absorbed much of what was mentioned and had the feeling...WTF!!!..so I got my local Household Insurance policy booklet out and started reading the PDS.
Yep...so at about 1100 pm..I started reading a House Insurance PDS booklet..90 pages long...guaranteed to make someone "nod off"...
It didn't work..at 1241am...it hit me after reading the last 20 pages of the PDS...I am under insured for House and Contents by about 35 to 40%...maybe more.
Ok..how can you become under insured...
Just a simple exercise..you...yourself value your property at say about $500,000 for example sake...but you have a $200,000 mortgage on that property with a bank.
The place "god forbid" becomes completely damaged by a "listed" occurrence..ie flood...bushfire etc..
I say listed...because the insurance company 'Lists" or another word.."defines" what a Bushfire is..flood is..etc..each insurance company has their own definition..
Anyway...the property is cactus..you want to rebuild the property again..to what you want it to be with all the stuff you had on it and in it before...but the price of the reconstruction comes to about $650,000..this could be because of increase costs..debris removal, dispursement fees, council and design fees, building supplier costs..if your property has some asbestos..well..$$$$$ and headaches on that score..
So basically you are out of pocket about by the tune of of $160,000 give or take..
You decide it's too much trouble to rebuild...so you decide on a payout..
This is the interesting thing...
You have valued the property @ $500,000...but you have a mortgage of $200,00...so the banking institution has first call on the $500,000...which is your mortgage..so its'..$500,000 less the $200,000..so you will get back $300,000...but wait there is more..less again costs of disbursement of the mortgage earlier (if applicable by your bank)..legal fees, council rates outstanding...
Basically...your $500,000 valuation on your property has revealed after displacements that you are under insured....and are left with $300,000.
It is best to value your property PLUS add onto this...your outstanding mortgage amount...in this case...$500,000 Plus your mortgage of $200,000 and any other issues...like a second mortgage or grantee of the property for a business loan..personal loan...etc..
When I mentioned these issues to the insurance employee today..when I went in to see them.."You read the PDS".."Who does that?" was their reply...and "Yes, that is correct..if you want a complete payout..legal institutions and outstanding debtors have first call on the policy and the policy holder receives what balance is left over."
Insurance companies have insurance calculators which you can access on line and you fill in the information needed and out pops a figure that is the true value of your property for replacement...then you have contents...they have calculators for that as well...

Some sobering or late night reading..if you are still awake at 1am in the morning..
The results will surprise you...it did me..http://understandinsurance.com.au/do...ough-insurance
Enjoy...

[Pixie_au]

Regardless of what you value you building at, I can't see an insurance company paying out on replacement cost plus remaining mortgage. Keeping in mind that mortgage is for house and land but the insurance is only for house.

But I do agree with people very easily becoming under insured when considering replacement costs.

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[spot01]

Well done reading your PDS - unfortunately far too few people do & only realise their error when it is too late.


A couple of other points to note:
- if you are underinsured by, say 25% & you have a partial claim, eg, a fire in one room, the insurer will usually reduce the payout by the underinsured portion, so in this case only 75% of the amount claimed would be paid. (This is because the whole house wasn't fully covered & you can't expect the full amount to be paid, which I agree with).
- when determining the amount of cover required, exclude the land value (it isn't covered), but include demolition, site remediation, fences, outbuildings and all other improvements.
- re-building costs are often more than people think, particularly if there has been a significant event (as we are tragically witnessing at present), resulting in a shortage of builders, tradies, materials, etc. Some policies include an optional extra amount for "catastrophy cover" to allow for these inflated costs.


Be sure to read the PDS and compare different insurers to get the best cover for your needs, as not all policies are the same.

[erad]

x2 for Spoto1's comments. Friends of ours had their rented house catch fire (the tenants were using candles). The fire brigade arrived and put out he fire. In retrospect, they should have let it burn totally because the Insurance company only paid a percentage of the claim because only a percentage of the property was destroyed. Now, I wonder if I insured my property for, say $1 million and it totally burnt, would the Insurance Company pay up the $1 million, or what they reckoned it was going to cost, say $300000, to restore the property to what it originally was? I think I know the answer.... I hope I never have to find out.

[Jasonmc73]

x2 for Spoto1's comments. Friends of ours had their rented house catch fire (the tenants were using candles). The fire brigade arrived and put out he fire. In retrospect, moe they should have let it burn totally because the Insurance company only paid a percentage of the claim because only a percentage of the property was destroyed. Now, I wonder if I insured my property for, say $1 million and it totally burnt, would the Insurance Company pay up the $1 million, or what they reckoned it was going to cost, say $300000, to restore the property to what it originally was? I think I know the answer.... I hope I never have to find out.

Did they choose to demolish & rebuld the whole house not required but neat & tidy same colour bricks etc that way?

Or did they replace the burnt bit & only get paid for a % of the rebuild of the burnt section?

Was there no other choice but to replace the whole house is my point if thats what they have done I mean?

I'm with NRMA myself & find it difficult in my case that I could ever be under insured as far as total property value goes?

The value of my insurance minimum allowed is worth more than I could sell my house & land for by about 10%.

Of course a one of build + on costs will cost more + some in times of huge demands.

[erad]

Did they choose to demolish & rebuld the whole house not required but neat & tidy same colour bricks etc that way?

Or did they replace the burnt bit & only get paid for a % of the rebuild of the burnt section?

Was there no other choice but to replace the whole house is my point if thats what they have done I mean?

.

The insurance company paid the percentage of the total sum insured. I don't know the exact details, but the house had something like 40% of it still standing. It was not repairable - the roof had gone and one end of the house was fully gutted. The insurance paid only 60% of the sum insured as far as I know. Suffice to say that my friends were not AMIcable to a certain insurance company. Also the insurance waffled around for over 2 months. The house has not been rebuilt as yet. It was not really viable to repair the building (asbestos etc as well).

[Jasonmc73]

The insurance company paid the percentage of the total sum insured. I don't know the exact details, but the house had something like 40% of it still standing. It was not repairable - the roof had gone and one end of the house was fully gutted. The insurance paid only 60% of the sum insured as far as I know. Suffice to say that my friends were not AMIcable to a certain insurance company. Also the insurance waffled around for over 2 months. The house has not been rebuilt as yet. It was not really viable to repair the building (asbestos etc as well).

Mmmm thanks for reply, worrying alright.

I certainly wouldn't be going quitely if it was me & the house was not repairable

[spot01]

Very disappointing how some insurers treat their loyal customers in their 'hour of need", but other insurers are very good - it is worthwhile spending a bit of time choosing a good insurer, not the cheapest.
EG, for car insurance I ask a crash repairer which insurer allows good quality repairs & is easy to deal with from their perspective, rather than insurers who screw the repair quote down too far.


The Insurance Ombudsman or Office of Fair Trading may be able to help.

[Jasonmc73]

Very disappointing how some insurers treat their loyal customers in their 'hour of need", but other insurers are very good - it is worthwhile spending a bit of time choosing a good insurer, not the cheapest.
EG, for car insurance I ask a crash repairer which insurer allows good quality repairs & is easy to deal with from their perspective, rather than insurers who screw the repair quote down too far.


The Insurance Ombudsman or Office of Fair Trading may be able to help.

That is good advice I think.

My insurance company is tight with repairers, its not something i'm happy about for obvious reasons, but my premiums house & car are well priced.
So I live with it realising I can't have my cake & eat it too, calculated risk

But in saying that, I have had a large claim on wives car few years back, hail.
Required new bonnet, new boot, new roof skin means out with frt & back windows roof lining out & about 50 dents down passenger side + paint job thereafter of course.
My premiums have never changed apart from loyalty tax of course which hasn't been great enough as yet to push my premiums higher than other suppliers.

They were also more than helpful with claim someone else's fault & they did go above & beyond cutting long story short to save me the excess 3 months after the damage occurred which is when claim was lodged.

Online only insurers are cheaper sure, but no way I will use them, which is just my gut feeling, faceless companies.

[Mundy55]

Further to Spot01's comments, if you underinsure by, say, 25%, the insurance company says you are, by your actions, taking on 25% of the risk. So, if there's a partial loss, you bear your share of the loss, here 25%. Most have a limit around 10% before the underinsuring rules apply.

The area people get caught on when trying to rebuild in fire prone areas after a total loss, is the fire rating of their property, the 2 highest levels, as I best recall, being BAL40 and Flame Zone. The latter imposes strict conditions on rebuild requirements which can drastically impact on the rebuild cost.

For example, friends of ours who were renovating and who lived in a Flame Zone area, had to pay $42,000 for a 2.4m slding door and 1.8m sliding window (standard sizes) which met flame zone requirements. I could not reubuild my house with its 2 elevated decks in timber as they are now, but would have to use concrete and steel.

So if you are considering the cost to rebuild your existing house it may not be sufficient because you won't be able to build it as it is. Many people got caught out in the last Blue Mountains fires some years ago. Unfortunately different councils interpret/apply fire rating rules differently so you need to get local advice.

[Peterng]

Further to Spot01's comments, if you underinsure by, say, 25%, the insurance company says you are, by your actions, taking on 25% of the risk. So, if there's a partial loss, you bear your share of the loss, here 25%. Most have a limit around 10% before the underinsuring rules apply.

The area people get caught on when trying to rebuild in fire prone areas after a total loss, is the fire rating of their property, the 2 highest levels, as I best recall, being BAL40 and Flame Zone. The latter imposes strict conditions on rebuild requirements which can drastically impact on the rebuild cost.

For example, friends of ours who were renovating and who lived in a Flame Zone area, had to pay $42,000 for a 2.4m slding door and 1.8m sliding window (standard sizes) which met flame zone requirements. I could not reubuild my house with its 2 elevated decks in timber as they are now, but would have to use concrete and steel.

So if you are considering the cost to rebuild your existing house it may not be sufficient because you won't be able to build it as it is. Many people got caught out in the last Blue Mountains fires some years ago. Unfortunately different councils interpret/apply fire rating rules differently so you need to get local advice.

Yes, give it a couple of months when it starts to settle down and then the media articles will trickle out on CH9 on how some bush fire victims were "hard done" by their insurance companies...it will boil down to some miscommunication and not understanding the PDS and fine print in the property insurance certificate.
There is a shed load of small issues that people overlook when insuring their houses...ie...the "loadup" in the quotes that tradies will do...25% or higher in some cases, because there is a shortage in building products, distance to job...shortage of trades..etc.
I know of a rebuild of a government health building asset in East Arnhemland after storm damage, no bigger than three 40ft shipping containers cost..$3million and 3 years to complete, plus they went through no less than 5 building contractors...and still they can't use the structure properly to what it was intended...needs some more alterations.
I was reading in the local rag...a couple waited 2 years for their house to be rebuilt after 50% of it was deemed "unsafe" to occupy by a "drunk" driver who crashed into the living room, bed room and partial kitchen. Their insurance company would not pay out immediately, for they wanted to go through the "drunk " drivers RTA insurance...but due to that person being "drunk"...well you can imaging the "shite" fight that would entail...eventually the couple had to get a "big city' legal firm involved to solve the issues...and finally after 2 years of literally being homeless...their house has been rebuilt.

It just means...read your PDS document and ask questions about the issues you have...