Understanding underinsurance and securing your peace of mind

Understanding underinsurance and what it means is crucial for knowing if you are fully protecting your assets. Learn about intentional and unintentional underinsurance, its consequences, and how you can avoid it.

Being adequately insured doesn’t end with getting insurance coverage as a ‘set and forget’. It's important to remember that your circumstances will change over time, and as a result, your insurance needs will too. Not reviewing your policies when they are up for renewal or proactively when your circumstances change can leave you vulnerable to underinsurance - a risk faced by many.

Defining underinsurance

Underinsurance occurs when your insurance coverage is insufficient to cover the full expenses of a claimed event. This can happen in two primary ways:

Intentional underinsurance

Intentional underinsurance occurs when a policyholder undervalues their assets to reduce their insurance premium. However, this cost-cutting approach can leave them exposed to additional out-of-pocket expenses in the event of a claim, as their policy might not compensate the insured for the full value of the item(s) or in the event of a larger asset i.e. a home, the policy may not cover the full cost of rebuilding, repairing, or replacing the home &/or contents.

Unintentional underinsurance

Unintentional underinsurance can occur because of a change in circumstances that isn’t reflected/updated on the existing insurance policy. Home improvements, car modifications or buying valuable items can all impact existing policies and may result in items being underinsured.

Consequences of underinsurance

In the unfortunate circumstance an insured person would need to claim from an insured event, and they had insufficient policy coverage, it can have inconvenient and costly consequences.

Financial strain can come from the inability to fully replace or repair damaged or lost assets, leading to unexpected expenses that will put pressure on budgets and savings. For instance, without adequate home insurance, homeowners may struggle to cover the costs of rebuilding their property after a weather event. Inadequate car insurance can leave policyholders unable to afford repairs or replacement following an accident.

Underinsurance can also lead to prolonged periods of recovery. An emotional and psychological toll can occur when an underinsured person faces the challenges of rebuilding their lives.

Make time for life admin

Rectifying underinsurance is simpler than you may think. To review your insurance needs and rectify potential underinsurance issues, consider taking the following steps:

1. Conduct a comprehensive insurance review: assess all your insurance policies, including home, contents, and car. Understand the coverage limits, policy terms, and exclusions.
2. Assess your coverage needs: major life changes, such as the purchase of an engagement ring, require adjustments to your insurance coverage. Ensure that all your assets are adequately covered.
3. Consult an insurance professional: seek advice from an insurance expert if you suspect you’re underinsured on 1300 557 155.
4. Adjust your policies: based on your review and assessment, make necessary changes to your policies. This may involve increasing coverage limits or adding additional policies.
5. Review and update regularly: make time to review your policies annually or after significant life events to prevent unintentional underinsurance and ensure ongoing protection.

By taking these measures, you may reduce the risks of underinsurance and enjoy the peace of mind that comes with knowing your assets and lifestyle are adequately insured.