Many parts of Australia are currently facing catastrophic fire conditions, with those who have lost their homes only now realising they are underinsured.
Research has discovered a national crisis of underinsurance and with months to go in this bushfire season there are fears the already high figure of 1500 homes destroyed will only rise.
There is evidence many of those who have lost their homes through bushfires will find themselves unable to rebuild due to inadequate or lack of insurance.
A prime example of this is the October 2013 Blue Mountains bushfires, in which almost 200 homes were destroyed and more than 65 per cent of affected households were underinsured.
The consequences of the fires aren’t just personal but affects local communities; vital knowledge and social networks are lost as most are unable to rebuild and move away.
A common misjudgement made is that people insure their homes based on its market value but rebuilding is often more expensive. There are the logistics and removal of debris to consider, building and council fees, not to mention the building materials and labour involved to rebuild especially when both are already stretched due to demand. These unforeseen costs can increase a rebuild by 20 per recent or more and, unfortunately, are rarely made clear to insurance customers.
The other factor often overlooked is that banks can claim insurance payments to pay off mortgages. This leaves the only way to rebuild is to take out another mortgage, which means once banks are paid, people have nothing left to restart.
According to an article in The Conversation if communities are to recover from bushfires, a national policy reform for disaster preparedness and recovery needs to be implemented to cover all Australians, we cannot rely and trust in individual insurance policies alone.
How to work out how much insurance is enough?
If you own and live in your own property, then you will need building and contents insurance – which will cover the rebuild and property within.
If you are a renter you will need your own contents cover – landlord insurance only covers the building, not your possessions.
Next is deciding whether to get full replacement or sum-insured cover .
Total replacement is more expensive but will cover the cost of rebuilding your home to its prior condition before the event (note, this will probably not include upgrading your home to meet any new building standards!), while sum-insured cover allows you to nominate an amount you want your home to be insured for.
It is the latter insurance, however, where many people make the mistake of under insuring their home – by basing the nominated figure on what they paid for the house or market value as opposed to what it will cost to actually rebuild the dwelling, which will include the cost of adhering to new building standards and other unforeseen costs such as rubble removal, tip fees and council costs.
To find out more about (re)building in a bushfire area go to the RFS website.
And always make sure you read the fine print on your policy to see if there are any exclusions you should know about – for example storm cover does not always include flood.
For more information about bushfire cover insurance specifically, it’s worth visiting the Choice website.