Terms and conditions. This is usually a standard form so it doesn't deal with your personal situation or your specific relationship with the insurer. Of course insurers deal with thousands of insured people, so the terms and conditions must to some extent be universal.

Policy schedule.
This is where your personal details are recorded. It will include details such as

  • your name and address;
  • the amount of cover;
  • type of insurance;
  • details of the items insured e.g. your car type and model;
  • special restrictions etc.

It is prudent to ensure that the schedule and the terms and conditions are not in conflict, especially with regard to special restrictions.

Where to keep it
You must ensure that your policy is kept in a safe place, and that someone else is aware of that place as well. You should also keep copies of all correspondence between yourself and the insurance company.

It is always a good idea to keep records of any valuable items in your house as proof of ownership.

Choosing a policy
It is a good idea to either act on the recommendation of a friend, if they have had dealings with a broker or company (especially if they have made a claim in the past), or to carefully shop around for the best deal. This can include getting professional advice.

Remember, this does not necessarily mean it will be the cheapest. At the time that you wish to claim on the policy you may find yourself far more interested in the way the company handles your claim.

Make sure you understand the policy, that its terms and conditions have been understood or adequately explained, and specifically what the insurance does and does not cover.

If you are looking to deal with an insurance broker, find out if they are licensed with the Australian Securities Insurance Commission (ASIC).

Filling out the application

  • Be careful with questions that are not specific - if you do not disclose information it may be used to reject a claim at alter time.
  • Answer all questions, even if you are not sure the question is relevant to you. Again, a lack of disclosure may be used to reject a claim.
  • Always be prepared to give additional information, and if necessary attach a separate sheet of paper. Always do a final check when you receive the policy.
  • Don't just put it in a drawer and forget about it (and remember where you put it!).

Utmost good faith
The law obligates all parties to the insurance contract to act towards each other in "utmost good faith".

You are obliged to:

  • fulfil your duty of disclosure (see "Duties" fact sheet);
  • make honest statements in the application;
  • fulfill the requests of the insurer.

The insurer is obliged to:

  • settle claims quickly;
  • have a genuine reason to refuse claims;
  • disclose restrictions in the policy.

Part of the duty of utmost good faith means that the insurer must specifically draw the insurer's attention to any exclusion clauses in the policy.

Levels of payment
There are two types of payment in a home contents policy:

  • Replacement or reinstatement policy. This replaces your content according to its current value, unless specific items (e.g. carpet) are to take into account wear and tear;
  • Indemnity policy. This type of payment allows for depreciation of the asset at the time of the claim. In general these types of policies cheaper than a replacement policy, because the insurer will not have to pay out as much after taking account of the depreciation.

Is my property underinsured?
As property owners, most of us are underinsured. That means we are not insured for the replacement costs of our assets. Of course, estimating the replacement cost of our houses and other assets is no easy matter, but there are some steps you can take to minimise the chances of underinsurance:

  • make sure you understand all the components of the total cost of rebuilding, including demolition, architecture, debris removal, engineering and council costs, alternative accommodation - in fact anything that is associated with rebuilding;
  • contact the insurance company when you do renovations to ensure that the added property value will be included if there is a claim (e.g. because of a fire) – don't wait for the renewal date;
  • include the value of any improvements to your property (that will include outdoor additions such as pergolas and garden sheds);
  • keep a complete inventory of household contents, including photos where necessary e.g. you might want to photograph in segments a large book selection.

Many insured rely on the value of the land that is stated in the Council rate notice, assuming that the extra value in the property will afford an accurate assessment of the value of the building. 

Here's a tip – use this method at your peril, because most likely it will leave you underinsured.

How do I value my property?
Insurers often place so-called web calculators on their internet sites, intended to make it straightforward to estimate the required cover. They use two methods:

  • the "elemental" – looks at different "elements" of the building e.g. whether it is on a slope, the postcode, leadlight windows, period features etc.
  • The "cost per square metre" – a simple calculation derived from the size of the house and the building materials.

Both methods are not overly reliable, but the elemental method probably provides a more accurate estimate. It is a good idea to put the same data into several calculators and watch for major differences in results.

It is always worth logging onto the Australian Securities and Investment Commission consumer "Fido" website www.fido.gov.au for the latest information on this subject, and their excellent advice concerning adequate home insurance cover.

Always ring the insurance company and discuss the valuation, including whether you should increase your premiums to cover rebuilding costs. You pay the premiums, so you have every right to make the call!

What about contents – can I also be underinsured?
Watch for underinsurance of home contents – how is the claim assessed?

  • Replacement or reinstatement policy. This replaces your content according to its current value, unless specific items (e.g. carpet) are to take into account wear and tear.
  • Indemnity policy. This type of payment allows for depreciation of the asset at the time of the claim. In general these types of policies are cheaper than a replacement policy, because the insurer will not have to pay out as much after taking account of the depreciation.

Again the lesson is to talk to your insurance company or broker so you do not lose the value of contents.

Cover notes
This is the temporary cover that most insurance companies will issue until you have taken a formal insurance policy. It only lasts for a limited period of time.

Cooling off period
You have a 14-day cooling off period to purchasers of many risk insurance products (for example, car and home insurance). The company must refund the premium. According to ASIC, "you have 14 days from the time your investment is confirmed by letter, fax or email to change your mind.

If you don't receive confirmation, your cooling off period begins at the end of the fifth day after the product was issued to you."

Check the ASIC financial website www.fido.gov.au for details of the best way to assert your right to cool-off.

Renewing the policy
For most of us there will be annual renewals of insurance, especially for consumer insurance such as car and home.

The insurer has the right not to renew your policy, but the law requires that they inform you in writing whether a renewal is offered prior to the expiry of your current policy.

Under the law the insurance will continue if the insurer fails to write to you with the information that the insurance is to expire.

However, this will not apply if you have arranged other insurance. The insurer must give you at least 14 days notice that you must renew the policy.

You fail to renew
It is crucial that you renew your policy before the current one expires. If you don't you will not be covered for any losses you suffer.

In some situations the insurer may agree to pay anyway, although this will often depend on the amount of the loss and the length of time you have held the insurance. However, you will not have the legal right to enforce the contract.

Exclusion clauses
An exclusion clause is simply a part of the contract that operated to exclude, restrict or qualify the right of the insured. A good example of this is the usual clause in a car insurance policy that denies liability to pay a claim if the insured was over the legal alcohol limit.

Reliance on exclusion clauses
Amongst other factors, some of the issues that may be taken into account when an insurer attempts to rely on an exclusion clause:

  • Who caused the loss? For instance, if you were smoking in bed at the time of a fire, and a fire caused this way is a breach of your policy, you may not in fact be in breach if the fire was caused by an electrical fault. In this case the fact that you were smoking in bed would be coincidental and not the cause of the fire.
  • Did you know about the circumstance at the time you signed the policy? For instance, if you have disability insurance that requires disclosure of any pre-existing illness, the insurance company may not be able to rely on the exclusion clause if you were not aware of the illness that caused the loss.
  • Is the exclusion clause unambiguous and clearly related to the event that took place?

Part of the duty of utmost good faith means that the insurer must specifically draw the insurer's attention to any exclusion clauses in the policy.

Cancellation of the contract
The insurance company has the right to cancel the insurance if the insured has :

  • failed to comply with either the duty of disclosure or the duty of utmost good faith;
  • broken a condition of the contract or made a fraudulent claim.

The law requires minimum notice of cancellation. In general you will receive a refund for the unexpired portion of the policy.

If your policy is cancelled it is important to get legal advice. There may be room to manoeuvre with the insurer or legal remedies available to you.

Last Updated – April 2010