Insurance is about protection – how do we get this message across?
I was sent a couple of articles by Jessica Irvine on how she cut the cost of her insurance by long-standing professionals concerned at the message it conveys.
Ms Irvine explains that her insurance was $412.61 a year to cover $50,000 of contents with a $1,000 excess. In the article, she also mentions that she considers herself rich.
I do not know her personal circumstances or exactly what she has in her unit, but in my experience $50,000 is not much when you add up what you have in your home or apartment.
I am just doing the exercise in my own home and am surprised just how quick the values add up when you go through room by room, and include all the things you accumulate. I do agree that you may not necessarily need or even want to replace every single thing, but the numbers go up when you bring in clothing, shoes, jewellery and accessories, sporting equipment, couch, bed and other furniture, carpets, drapes, non-fitted white goods, electronic equipment, and all the stuff in your kitchen, bathroom and laundry cupboards. This does not take into consideration artwork, statues, family heirlooms that you may, or may not have.
Long term readers will know that my own home caught fire on Christmas day, 2018. The damage was confined to just the one room, and we had lost built-in cabinetry, the timber floor and ceiling. The cost ran well in excess of $50,000. I appreciate that a fair bit was building, but I would suspect the contents loss of a couch, rug, TV, blue-ray, stereo system, DVD’s, etc. exceeded her new sum insured of $25,000. Because the loss was more than $50,000, our insurer waived the policy excess. I could then use this money to upgrade to new technology rather than put back like with like.
For the current $50,000 cover, she is paying $412.61 which equates to $7.93 a week. less than the cost of two cups of latte. I do not think this is too bad for the protection it offers.
A major difference between home contents insurance and business insurance, is that there are penalties for being under insured that kicks in even for partial losses. This is a very unpleasant surprise for many.
In an apartment, the major risk is water damage from burst pipes. I am not sure about any cladding issues or other non-conforming building issues that may cause a loss. I am also not sure about the risk of burglary without seeing the property and knowing what level she lives on, the location, etc. This would have been factored into the premium.
Without reading the policy, I am not sure if the $5,000 excess she has now taken on comes off any loss or off the sum insured in the event of a loss that exceeds the sum insured. This is something that needs to be understood.
From a lot of research done, it was found that most people could not put their hands on an emergency fund of $1,500 within 14 days of something cropping up in their lives. I cannot recall the exact percentage but it was well over 50%.
I would suggest from my life time of work in claims that a lot of what are referred to as working losses, come in at just under $5,000 in apartments. For example, burst pipes, fires in a neighbouring apartment, with extinguishment water and or smoke damage.
With such a small sum insured and with a $5,000 deductible, I am not sure why she is carrying insurance at all. One reason she should have, it is the public and personal liability coverage she has. It is not so much a visitor tripping over as she suggests, but leaving something on the stove and setting fire to the building. When my daughter moved to the US to study, I insisted she purchased contents insurance for this very reason. I would hate for her studies and the rest of her life for that matter to have been torpedoed by a giant law suit.
We are all different in our thinking and the risk appetite we have. While what the journalist has determined is right, for her is not necessarily correct, only time will tell and it is certainly not correct for everyone.
One of the things that has worried me for years is that while finance journalists are trained in the banking system and the stock market, they are not trained in insurance. The same goes for accountants. Without appreciating the massive difference in coverage and sub-limits, it is easy to pick the cheapest price only to regret it later. In the end, Ms Irvine paid under $200 for her insurance. If, say, she purchased a bottle of perfume for this amount and ended up finding it was not to her liking, she has lost $200. If she purchased the wrong insurance it could cost her tens of thousands.
One thing that I feel she did get right, as did Allan Fels in his last few days in his job, is that the levies and taxes on insurance are obscene, and forcing people like Ms Irvine to look for ways to cut their insurance cost.
In Ms Irvine’s case, these levies/taxes increase the cost of insurance by a staggering 27.62%, but this is due to another massive rise, again with the increase in Emergency Services Levy. As Prof. Fels reported, the NSW levy has risen by 45% from 2018/19 to 2020/21. What other tax has gone up like this?
This is government policy at its very worse. We need to encourage more people to protect themselves financially with adequate insurance, and not become a burden on government when things go wrong. And as we have seen over the past few years, things go wrong.
Rant over. I wish Ms Irvine no ill will and hopefully she will never have to put her insurance to the test. If she would like me to do a review of what she has purchased, I would be happy to do so.