Australians can probably consider themselves fortunate. Compared to other nations, Australia’s social security, healthcare services, and living standards are quite competitive.
However, the problem with knowing this for some people is that it can also breed complacency, which in itself can be harmful.
Consider the summers when bushfires hit large portions of Eastern Australia, as well as parts of South and Western Australia.
As studies have shown, when bushfires (and other disasters) happen, the glaring underinsurance problem in Australia rears its ugly head. The effects of bushfires on buildings, the environment, people, and wildlife are always devastating.
But why are Australians underinsured? What can be done to change this?
The need to secure tangible and wealth-generating assets
When disaster strikes, businesses and homeowners realise too late how they don’t have the means to recover financially and replace important possessions that have been lost or damaged.
Why do so many Australians lack adequate coverage for their tangible assets?
Here, there are certain factors at work:
- Policyholders typically don’t evaluate their insurance requirements on a regular basis. It’s improbable that insurance considered adequate five or ten years ago would be sufficient now to rebuild a home or replace its contents.
- People frequently base their insurance policies on the value of their home or business. However, insuring at market value won’t always protect against additional costs associated with rebuilding after a natural disaster. For example, new building restrictions to prevent future disasters can significantly increase the price of a rebuild in addition to the expense of clearing a site.
- Some people’s insurance decisions are purely financial. Instead of seeking coverage in the event of a worst-case situation, their focus is on the policy’s cost.
The problem, of course, is that underinsurance in the face of disaster could have serious consequences, especially when some people might still have a mortgage or other debts to pay off.
The importance of insurance for Australian families
The ecosystem that supports the financial, emotional, and physical welfare of Australians includes life insurance as a key component. However, Australians frequently have insufficient insurance in this area as well.
The one good thing that ensures the majority of Australians have life cover is superannuation-based insurance. Super members are typically offered three types of coverage:
- Death cover or life insurance
- Total and permanent disablement (TPD)
- Income protection
Still, while this insurance is helpful, it also has its limitations and covers only a basic level of needs. It’s also inadequate to cover the needs of parents with very young children — especially in cases of total and permanent disablement and death.
How to avoid underinsurance
Although the underinsurance problem plagues a lot of Australians, it comes with a solution.
You can easily protect yourself from it by:
- Familiarising yourself with the risks you face, whether as a business or homeowner.
- Getting accurate estimates of the value of your home and its contents. The same goes for business owners and their assets.
- Regularly reviewing your policies. Try to do this annually to check if you need to increase your cover.
- Opting for insurance cover that fits your budget and protects you from risk exposures.
Talk to an insurance broker or your financial advisor today!
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.