Under Insurance

Reporter: Graeme Butler

There's nothing left of David and Sue Roper's dream home - one hot day in December it became an inferno - in it every possession the couple owned. If the shock of seeing their home burn to the ground wasn't bad enough - another blow was about to come - like almost all Australian home owners - the couple was grossly underinsured. "We were probably naive I guess we insured the house for what we paid for it and every year we increased the value of the house but to know where near the extent we should've done"

The cost of rebuilding the house had blown out by around 80 thousand dollars more than the insurance cover... that's money the couple will now have to find, "it's devastating absolutely devastating we tried so hard over the last five years to get the mortgage down if not to get rid of it to get it to something reasonable before I retire and now we're taking three steps backwards from owing $50,000 I'm going to end up owing $120,000" But the cost of rebuilding is just the tip of the ice-berg, not only was the building under insured so were the contents - to the tune of $100,000. "I couldn't believe it how silly were we but it was one thing we had talked about we must increase the insurance must do it but we just didn't do it in time" Silly maybe, but certainly not alone - a recent study by insurers found most Australian homeowners are under insured.

"Increasingly common certainly in the last few years there was a survey done by the commission that regulates general insurance in Australia about 18 months ago that suggested about 80% of home property is under insured" Peter Marchant from RAC insurance says the housing boom in Western Australia has had a disastrous effect on insurance cover. "People are rejoicing at the moment at the fact that the house has boomed in price in Perth in the last few years and rather than sell up and buy a house for the same price people are taking advantage of the equity in their homes renovating kitchens renovating bathrooms doing extensions adding swimming pools all of this adds to the value of your home"

Claire Currin has just finished a major renovation to her home - "we expanded the living areas and obviously just totally renovated inside new floorboards new carpets new tiles in the bathroom" While the house has been transformed the insurance cover hasn't, "I think my husband upped it slightly but by no manner or means I don't think we're adequately insured"

To find out just how inadequate the insurance cover is we called in property valuer Nathan King from Hegney property group at the moment the house is insured for $165,000 - but what would it cost to rebuild should it be destroyed. after the renovation there are now 5 bedrooms, a new lounge room and games area - and a new kitchen. "Looking at the size of the house the level of appointment the improvements such as a below ground pool I believe that an insurance figure in excess of $400,000 is appropriate for this home." The recommendation is to insure for $410,000 - that means right now it's under insured by $245,000. Claire says "it's just amazing how you just take something for granted and don't realise all that it costs to replace a home"

While for most people estimating the replacement cost of their home is like plucking a figure out of the air - there are some good starting points for advice, Peter says "we actually have a sum insured calculator on our website that people can use perhaps talking to your local real estate agent or the housing industry association would also shed some light on what the true sum insured should be" Sue says "check your insurance check what you're insured for and go through your house room by room have a look at what you've got and add it up"

For more information on underinsurance visit the RAC website: http://www.rac.com.au/