According to the Insurance Council of Australia, many Australians are underinsured.

There are several misconceptions about insurance that have led to underinsurance in Australian businesses and households.

Here are some of the most common.

1. Assuming insurance is too expensive or out of reach

Many Australians see insurance cover as being out of reach for them. But it needn’t be this way.

For example, the cost of insurance can be reduced through solid risk management, adhering to industry health and safety guidelines in a business, and by shopping around for the best deal.

Both business owners and individuals can also usually spread the cost and better manage their cashflows by opting to pay their premiums by monthly instalments.

2. Relying on outdated figures or assumptions

Once you have a policy, it’s important to regularly review and update it in line with any changes.

For example, homeowners and renters tend to accumulate new possessions over the years but fail to increase their contents cover to match.

Similarly, if you own a business and make some changes to it, such as expansion, diversification, or relocation, you should check that your insurance cover is still adequate and update it if not.

3. Focusing mainly on the cost

While it’s natural to want to keep the costs of insurance down, opting for the cheapest cover may not be the best bet. It could mean in a catastrophe you end up not having enough cover to rebuild or to replace lost items.

So, when shopping for insurance cover, don’t just go by the price! Instead, make sure to also check which events are covered and for how much.

4. Skimping on the detail

Reading insurance documents such as product disclosure statements might not be the most fun thing in the world, but it’s important for understanding the detail of your policy.

For example, homeowners have at times over the years assumed they were covered for floods – only to find out after a flood event that their policy didn’t include it!

So, make sure to take the time to read the details of your policy, or to at least ask your broker to explain it to you.

5. Automatically opting for a low excess

The trouble with setting very low excesses on your policy is that you usually end up paying higher premiums, potentially costing you more in the long run.

A better option might be to pay a higher excess in a claim, and in the process reduce the cost of your premiums.

However, there is no right or wrong answer here. The important thing is to think through the consequences of the decision you make regarding policy excesses.

6. Assuming insurance companies avoid payouts

Although some negative stories in the media might indicate otherwise, the fact is that most legitimate insurance claims for losses end up being accepted and paid.

But where a claim isn’t accepted, policyholders have recourse to internal dispute resolutions, complaints departments, or to the Australian Financial Complaints Authority (AFCA) to assist them.

Ask your broker for assistance

You don’t have to go it alone with buying business or personal insurance! A professional broker will be able to secure the best cover for your needs, explain your policy to you, and answer any questions you have.