What are the consequences of being underinsured?

At A Glance

• Myriad reasons may prevent us Australians from knowing about insurance and getting sufficiently insured. You may not realise, but your current insurance plan could not be providing you a sufficient cover in case things go awry.
• With Aspect UW‘s insurance insights, you can assess your current insurance plan and cover risks you may have left out.

Are you sure that the insurance you have actually covers most of the risks? Let us say you buy accidental death insurance online and do not feel the need to speak to a specialist insurer. There are instances that you should have accounted for, which is why the insurance you took needs to be revised. Contrary to popular belief, there is a chance that you are underinsured. At Aspect Underwriting, we provide specialist insurance information that can help you be sure about your insurance needs.  

What Does “Underinsured” Mean?

If you need additional insurance or have the wrong coverage, you are underinsured. For instance, you can have death insurance in Australia but no financial security in the event of an accident or sickness that leads to a disability that prevents you from working for a certain amount of time.

While it is challenging to be exactly sure how many Australians are underinsured, a recent report released by the FSC estimates that more than one million Australians are underinsured for death, or TPD. The underinsured gap for income protection is as wide as 3.4 million people.

Source: https://fsc.org.au/resources/2537-fsc-australias-life-underinsurance-gap-research-report-2022/file

A True Story:

The Insurance Council of Australia published the following incident in a recent catastrophe report.

The Black Summer bushfires destroyed a family’s lake property in the 1930s. The owner assumed that his belongings had been lost when he left them, and regrettably, he turned out to be right. The moment the RFS confirmed the loss, the property owner filed an insurance claim.

He called a local assessor within a few hours of the incident. The assessor evaluated the claim within 24 hours. As his assets were covered by insurance for replacement costs and the building was also insured, the insurance company settled the asset claim in two days. The building claim took almost ten days to resolve. The owner acknowledged that he did not account for the expense of rebuilding his property when he renewed his building insurance.

He had yet to think about his location’s Bushfire Attack Level rating, the expense of in-demand trades and supplies, or the local council’s building rules. Was he underinsured? Yes, he was. The insurance company handled his claim “above expectations.” However, the fact that would have to replace his new home in 2021 in a community at risk for bushfires required him to come up with an additional $80,000.

While most Australians have some level of death or TPD insurance coverage, it needs to be adequate. Furthermore, income protection and life risk coverage are essential, particularly among the middle-aged and high-dependency demographics.

Reasons For Being Underinsured

Despite being a developed nation, Australia is among the most underinsured countries. Here are a few reasons.

Insurance is Expensive:

The notion that life insurance is too expensive while, in reality, not having coverage costs you much more than paying a monthly premium. In case you browse around and compare policies, you can get life insurance that is affordable and yet provides max coverage.

Insurer Doesn’t Have My Back:

A lack of faith in the ability of life insurance providers to settle claims. Although most Australians feel life insurance is crucial, only some think their life insurer will be there for them in times of need.

I don’t need insurance:

Young people typically believe that their commitment to a healthy diet and regular exercise makes them indestructible. If I am healthy and young, why bother being insured? Life’s curve balls hit everyone alike, and life does not play favourites.

Not on the Priority List:

Some people are aware of their insurance needs but put them off because they haven’t “gotten to it” or because they don’t have children. They do not ruminate about the implications of their passing or how it would affect their loved ones. Many people are still determining where to begin and think it will take them too long to figure it out and thus find it easier to leave it at bay.

Do I need insurance? 

The fact of the matter is that if your savings are insufficient or if you would like to keep your savings intact to safeguard you and your loved ones through difficult times, you need insurance coverage. The best course to take would be to discuss the ways of filling the gap in your coverage with a specialist insurance broker. Aspect UW helps you with all your insurance needs, whether for trauma insurance or permanent disability. Reach out for an online insurance quote now.

How Do I Assess If I Am Underinsured?

Here is a quick checklist for you to know if your property and life insurance covers are adequate.

• A change in your matrimony of family status – got married or had a child.
• Change in your income or change in your lifestyle.
• Change in mortgage – took any additional loans.
• Increase in the number of dependents in the family.
• Correct estimation of the replacement of the premises and all the assets.
• Considered the cost of inflation.
• Do taxes and duties include the heritage or preservation orders from the council?
• Costs of rebuilding include architecture estimates, engineering estimates, debris removal, and more.
• The cost of replacing the contents that go unnoticed but are a part of your current lifestyle.
• Cost of being unable to work or do business for an extended period or the indemnity period.
• Complied with full disclosure policy.
• The increased cost of living is being assessed annually.

Consequences of being underinsured

Believe it or not, being underinsured can have serious consequences, particularly if you experience a loss or unexpected event that is not fully covered by your insurance policy. Some of the potential consequences of being underinsured in Australia include the following:

Financial burden:

In the event you are underinsured, you may be responsible for paying out of pocket for damages or losses that exceed the limits of your policy. This can be financially devastating, especially if you are not prepared for such a cost.

Lack of protection:

Insurance is designed to protect you and your assets in case of a loss or unexpected event. If you are underinsured or fall short of the required TPD insurance cover, you may not have sufficient protection in place to cover the full extent of your losses, leaving you vulnerable to financial hardship.

Legal issues:

If you are involved in an accident or other event that results in damages or injuries to others, you may be held liable if you are underinsured and unable to fully compensate the affected parties. This could lead to legal issues and potentially costly legal fees.

Make sure you have the right amount of insurance coverage to protect yourself and your assets. If you are unsure about your coverage, consider speaking with an insurance broker or financial advisor to determine the right level of insurance for your needs.

If any of the above needs to be revisited since you last took insurance or paid the premium, consider looking at the additional insurance to avoid being underinsured. The entire concept of insurance is to get adequate coverage in case life throws a curve ball.

You can find income protection quotes, trauma insurance quotes, accidental and death insurance quotes, and TPD online. We welcome you to Get a quick quote and get on with life, knowing that you and your loved ones are covered just in case something undesirable happens.