The risks of paying less for your insurance
The cost of living is increasing, and everyone is looking for ways to save. One way of finding potential savings is adjusting your insurance policy – like by choosing a higher excess to lower your premium, lowering your sum insured, or switching insurers entirely. But these budget-saving measures could increase your risk of potential out-of-pocket costs – either by leaving you without cover that fully meets your needs, or by requiring you to pay a lot more at claim time.
If you’re looking for some ways to save on your home or contents insurance, AAMI’s got some tips for you!
Not all policies are the same
Your insurance should meet your requirements – and that doesn’t just mean your budget. It should also do the thing you have it for – that is, adequately cover your home, car, or contents (or whatever you have insured!). Otherwise, you may be underinsured, and that could mean a lot of out-of-pocket costs if an incident occurs. Make sure you’re comparing policies carefully if you’re shopping around!
When looking for a cheaper deal, people may zero in on cost and forego any other considerations. There are a number of other factors to keep in mind when choosing an insurer, like:
- their reputation
- the customer and claims experience, and
- the extent of cover actually on offer.
A little bit of extra research can save on time, effort and money, and provide you peace of mind down the road. To understand what’s included in a policy, read the relevant Product Disclosure Statement. This details a policy’s inclusions and exclusions. You can find AAMI’s policy documents here.
Things to consider before increasing your excess
One of the easier ways to lower your premium is to increase your excess. While this may work well for some people’s circumstances, it may not for others.
When someone increases their excess to reduce their premium, they will likely be saving money in the short term. But, they may want to consider what they’re prepared to pay in the event of a claim. If they need to make multiple excess payable claims, these costs can build up quickly.
The appropriate excess is unique to each individual, so carefully consider what works for you and what level of risk you’re comfortable with.
Watch out for underinsurance
We all want our home and belongings protected against life’s surprises.
But what if there is an insured event and the amount listed on your certificate of insurance isn’t enough to rebuild your home or replace your contents?
This is known as underinsurance.
Underinsurance can happen for many reasons:
If your home or contents are not valued according to their repair, rebuild or replacement costs when purchasing or updating your policy.
If you renovate your home but don’t adjust the building value on your policy – also known as the sum insured.
If you purchase new items, like appliances or furniture, but don’t adjust the value of your contents on your policy.
With the cost of living rising, it may be tempting to have a lower sum insured to save money on your insurance premium.
But if you need to claim, your insurance policy might only cover a portion of the repair, rebuild or replacement costs, leaving you to pay the rest.
When it comes to choosing a set sum insured for your policy, there are a few simple steps you can take to help avoid being underinsured.
Use the AAMI Home Building and Contents calculator to get an estimated rebuild cost for your home and estimated total replacement costs for your contents.
A qualified builder can also provide further help with estimating rebuild costs according to current building standards.
Make a list of your belongings to ensure your contents sum insured is accurate. For particularly valuable items, take a photo, note their value, and save any receipts.
Keep this list up to date by adding any new items you purchase for your home.
No two home insurance policies are the same, which means it’s important to read your policy documents.
Knowing what your policy does and does not cover, and any limits that apply, will help give you confidence that you’re covered if you ever need to claim.
With AAMI, you can also choose our optional Complete Replacement Cover for the home building.
Complete Replacement Cover is our best protection against underinsurance as we’ll repair or rebuild your home as it was or pay you the amount of the assessed quote to repair or rebuild it, without you needing to set a sum insured.
And remember, don’t set and forget. As your life circumstances change, so should your home and contents insurance policy.
Regularly review your policy details to ensure your cover is up to date and meets your needs.
Download the AAMI App or log in online to update your policy.
And for other helpful tips, visit the AAMI Informed site.
Another lever you can use to tweak your premium is your sum insured – the amount your home or contents is actually insured for.
At AAMI, we’ll review your sum insured at renewal, and this amount may be higher than what you had last year due to inflation, increased building costs and replacement costs. You can adjust this amount within a set range. However, if you choose to set your sum insured to a lower value, you may be at risk of underinsurance. This can mean that you may not be adequately covered in the event of a claim where significant damage has occurred, or a total loss.
You can read more about avoiding underinsurance here, but the short of it is to regularly review your sum insured against the overall value of your home or contents, and update it accordingly. Carefully examine your own circumstances to identify a figure that sits right with you and your needs before making a change. If you want a bit of help, you can use AAMI’s Home Building and Contents calculators.
AAMI offers Complete Replacement Cover as an optional cover on Home Building Insurance policy, which is an alternative to setting a specific sum insured. If your home needs to be repaired or rebuilt after an insured event, we’ll offer to do so as it was, or pay you the amount of the assessed quote to do so. We’ll also cover any spikes in building costs, meaning you won’t be left out of pocket. Since your home will be built as it was, it helps in removing the risk of being underinsured – as the name says, it’s a complete replacement! Some exclusions apply, refer to the PDS for details.
Read more:
- Home insurance excess explained
- The home insurance claim assessment and repair process
- How and why to avoid underinsurance
Insurance issued by AAI Limited ABN 48 005 297 807 trading as AAMI. Read the Product Disclosure Statement before buying this insurance. The Target Market Determination is also available.
This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.
The information is intended to be of general nature only. Subject to any rights you may have under any law, we do not accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, incurred as a result of reliance upon the information. Please make your own enquiries.