This is especially important given how easy it is for people living near the bush to find they are underinsured after suffering a bushfire.
Ian Mabbutt, Head of Steadfast Direct, explains that all too often, people find themselves unintentionally underinsured when it comes time to claim after a bushfire devastates their home.
“Policyholders don't usually intentionally underinsure their homes, they just don't know how to go about working out what they need to insure for,” he says.The problem happens because most people know what they paid for their home, but this is a different value to how much it costs to rebuild it. Luckily there are lots of steps people can take to help ensure their home is properly insured for the full cost to rebuild it. For instance, an insurance broker can help you calculate how much insurance you need. Steadfast brokers have access to a calculator that includes many questions about your home to determine the right level of insurance cover. If you’re living in a bushfire area, it includes questions about how close the home is to bushland. The closer it is to bushland, the higher the rebuilding costs, to help ensure it meets rebuilding compliance rules set out under the Bushfire Attack Level rating (BAL).
“A BAL measures the potential for your home to be exposed to fire”
A BAL measures the potential for your home to be exposed to fire, ember attack and radiant heat. Properties are assessed under six BAL ratings from BAL Low, which means the risk is low enough so there are no special building requirements, to BAL FZ which means the building could be directly exposed to fire.
The calculator also takes into account the number and size of bedrooms on the property, the number of bathrooms, the square meterage of the home and whether it’s on a sloping block of land. It also considers whether the property has a garage or carport and for how many cars. The quality of the finishings in the home and any home improvements such as a pool, deck or garden shed are also taken into account. “It will determine a reasonably accurate estimate of the rebuilding costs,” says Mabbutt.
The Insurance Council of Australia also maintains a web site called understandinsurance.com.au that also has a building sum insured calculator. When you’re working out the rebuilding costs, it’s also an idea to consult a builder or architect, who may be able to provide an accurate estimate of rebuilding costs. They should be familiar with building code requirements in your area.
The most common problem people face after suffering a fire and claiming on their insurance is only insuring the property for the amount you originally paid or picking a sum insured based on the cost of the premium.
“The retail value of your home is not an accurate guide for the rebuilding costs,” says Mabbutt, who says it’s also unwise to choose a policy based on the budget you have set for the premiums you are prepared to pay.
“We discourage people from doing that, because there are many insurance policies available at different price points, especially for home insurance. You can get a product that has all the bells and whistles and very comprehensive cover, or you can get a policy that provides cover for specific events including bushfires. These policies may be cheaper than comprehensive policies, but still cover the full rebuilding costs and have a lower level of cover in other areas,” he notes.
Steadfast’s home insurance policies include a building sum insured safeguard cover. This applies when the Steadfast broker uses the calculator to determine the sum insured. So if the sum insured under the policy is not enough to rebuild it and your home is completely destroyed by a bushfire, the policyholder receives up to 30 per cent more than the amount insured under the policy. “This helps if you get the calculations wrong,” says Mabbutt.
These policies also include automatic policy sum insured indexing of six per cent a year, to help ensure the sum insured value is always up-to-date. They also cover the reasonable costs of architects' fees and the reasonable costs of removal of debris following a bushfire. The policy includes an additional $25,000 cover to help make sure the rebuilt building complies with local government bylaws.
“If your home is unique or architect-designed, it's worth having an architect or builder help determine the correct rebuilding costs. The calculators are very good, but if there's something special about your home, they may lose a bit of accuracy. So talk to the experts when you’re taking out your insurance so that in the event your home is destroyed by bushfire, you have the right cover in place,” he adds.
Please consider the Product Disclosure Statement (PDS) carefully in deciding whether to buy (or continue to hold) home insurance and also whether this insurance is appropriate for you. The PDS can be obtained from your Steadfast broker (the nearest one to you can be found at find a broker on www.steadfast.com.au or call 02 9495 6500). Steadfast home insurance is underwritten by Hollard Insurance Company Pty Ltd or Insurance Australia Ltd. Terms, limits, deductibles and exclusions apply to home insurance. If a bushfire is burning near your home, insurers may not offer insurance.
The information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928).
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