Break & Enter
Sydney Morning Herald
Wednesday December 12, 1990
IT'S THE festive season again and while you make merry, someone else may be making off with the contents of your home. A lax approach may cost you dearly since, according to the Insurance Council of Australia, there is one burglary every four minutes.
So, if you're going away, it's a good time to check your insurance policy and make sure it gives you the protection you need. Besides that, if your house is going to be left uninhabited for lengthy periods there are certain conditions you are required to meet.
Neglect to do this and you may find your policy is worthless. Most companies set 60 days as the limit. If you are away for longer, you are obliged to notify them in writing beforehand and obtain their written consent. They will want to know what security arrangements you've made.
If you meet their requirements (ensuring the house is safe, notifying the police and asking neighbours to keep an eye on it) they may continue to cover you but charge a slightly higher premium to meet the added risk. GIO, for example, charges an additional 5 per cent a month. However, since conditions vary from company to company it is best to check this well before your departure date.
Also check how much you have insured your home contents for and be sure it is a realistic figure.
Over the past year many people were forced to learn bitter lessons about under-insurance after the earthquake, storms and heavy rains that lashed NSW.
Most insurance companies apply a formula called the Average Clause to protect themselves from people who underinsure in order to pay smaller premiums.
However, they do allow a margin for error. But if the sum insured, nominated by you, is less than 80 per cent of the true value of your home contents they will apply the formula as follows: A x S divided by P
A = the amount of the claim
S = sum insured
P = 80 per cent of the true value of the contents
Assuming you suffer a $16,000 loss and you are insured for $30,000 but the more realistic sum is $50,000, they would calculate:
$16,000 x $30,000 divided by $40,000, which equals $12,000.
The insurance company would pay you only $12,000, leaving you $4,000 out of pocket.
Being underinsured means you will be unable to put yourself back in the situation you were in. This can be devastating (although some would say their lives improved once the TV and VCR were gone), especially if you suffer a total loss. So buying inadequate cover is almost worse than having no cover at all as it fosters a false sense of security.
Insuring for the correct amount is your responsibility, so it is crucial you get it right. Most companies provide helpful guides that list contents room by room and enable you to make a detailed and comprehensive estimate of value.
The large selection of insurance policies on the market make it difficult and bewildering for the consumer doing comparisons. You need to go through the fine print carefully as the differences are not always obvious or easy to spot.
Premiums on their own are not a good indication of value. Basically you want a policy with the widest cover and least exclusions and restrictions. You also need to take into account whether there is a discount, excess or no claim bonus. Equally important is a company's record of payment.
Most home contents policies cover "defined events" such as: fire, lightning, explosion, storm, water damage, earthquake, theft, impact damage, oil leakage, civil commotion, malicious acts, temporary accommodation if your home is uninhabitable because of the above and legal liability.
Some policies offer "accidental coverage", as an optional extra, to cover accidents such as dropping paint on the carpet or breaking a vase, but cost more.
However, for most people a "defined events" contract is sufficient. But there are major differences to watch out for. Some insurers sell indemnity policies while others sell reinstatement and replacement policies. When working out the sum insured for an indemnity policy you are asked to take wear and tear into account. Consequently it is lower than it would be for a replacement policy which requires the direct opposite - that you calculate the cost of replacing the goods - ie, new prices.
Because of the lower sum insured, the premiums are lower and appear attractive. But this could be a false economy. If you suffered a major loss you would be substantially worse off than you were before since the insurance pay out would be insufficient to enable you to buy replacements leaving you to do without.
Till recently half the market was dominated by indemnity policies through the NRMA and GIO. But a few months ago the NRMA changed its contract to offer replacement cover for contents less than 10 years old.
It also removed fusion (covered by the other three companies shown in the table), which covers damage to domestic appliances by sudden power surges on the grounds of abuse - that many claims were really for wear and tear.
The GIO, which offers the cheapest premiums in the survey, continues to offer indemnity policies. If your contents are new they are worth considering since, even if the worst happened, you wouldn't be seriously out of pocket and still benefit from cheaper premiums.
The other three companies offer replacement policies. While the NRMA premiums are highly competitive, they lose some of their appeal once you make a claim and the 25 per cent no claim bonus is lost.
For example, if you take the first two suburbs listed in the table - the NRMA premium for Balmain and Bankstown, minus no claim bonus - is $322 and$292 a year respectively, making it more expensive than the AMP which offers slightly wider cover.
Another important factor is the different risk rating companies give to different areas.
While one company may regard your suburb as a high-risk area, another may view it more favourably, thus offering you a better deal.
For example, the GIO, the NRMA and Mercantile Mutual regard Paddington as a high-risk area, premiums ranging from $317 to $512 a year, but the AMP rates it more favourably at $255 and is thus good value. Similarly while the AMP regards Balmain as a higher risk, the GIO, NRMA and Mercantile Mutual don't.
As insurance companies make period adjustments to these risk ratings, it's important you keep up with their changes.
Replacement policies vary considerably from company to company and while there isn't enough space to point out all the differences, the following should illustrate the need to read policies carefully.
Replacement does not necessarily mean replacement at any age. The NRMA replace only if the items are less than 10 years, the Mercantile Mutual, less than 20 years. Both take wear and tear into account after these limits. Only the AMP replace regardless of the age.
Most policies offer family liability. Mercantile Mutual and the AMP offer world-wide cover while the NRMA and GIO restrict theirs to Australia. Mercantile Mutual offers an additional cover - $10,000 to modify the home should any member become disabled.
Some companies offer limited cover for valuables such as jewellery, furs, Persian carpets, antiques and works of art. For example, the NRMA covers only the first $1,000 of jewellery, while Mercantile Mutual covers up to $750 an item up to 20 per cent of the sum insured and $5,000 an item for works of art up to 20 per cent of the sum insured. It also covers up to $500 cash. And like AMP it covers the illegal use of credit cards up to $500.
Most policies also offer restricted cover for contents outside the home but to a limit of between 5 and 20 per cent of the sum insured. So, if you are taking more than this limit with you on your holiday, contact your insurance company beforehand.
It's important to know what home content policies do not cover: flood damage (water damage has to be caused by broken pipes, tanks and overflowing gutters), subsidence or landslide (except if the result of an earthquake), theft by a tenant, mechanical or electrical breakdown, damage from insects, impact from a falling tree caused by tree lopping, war and nuclear damage. The AMP offers a discount of 15 per cent for people over 50. Mercantile Mutual offers 10 per cent if you are over 55, 5 per cent if retired and 15 per cent if you are both.
Commercial Union refused to give its premiums.
HOME CONTENTS INSURANCE:
WHAT $40,000 COSTS ANNUALLY
GIO NRMA AMP MERC MUTUAL
AREA $50 NO-CLAIM $50 $50 EXCESS
EXCESS* BONUS EXCESS
Balmain
229 242 303 382
Bankstown
229 219 240 382
Baulkham Hills
204 162 240 262
Bondi
229 242 240 302
Chatswood
138 162 255 262
Hornsby
138 125 221 262
Mona Vale
138 162 221 302
Paddington
338 317 255 512
Parramatta
229 242 303 302
Penrith
204 162 255 302
Rose Bay
229 242 240 302
St Ives
138 128 255 262
Strathfield
229 219 303 302
Sylvania
138 128 221 303
* GIO only provides indemnity cover, not full replacement insurance. Gold
customers - those who have been with the GIO five years - don't pay an excess in
the event of a claim, after which they lose this privilege.
© 1990 Sydney Morning Herald
