# Forum More Stuff At the end of the day  Home Insurance

## phild01

I don't like the insurance industry because of their greed and avoidance to paying up.  Anyway just giving home insurance a thought as premiums are going through the roof (despite people on this forum saying you can void your insurance if you don't do this and you don't do that...yawn). 
I suspect there are close to 1.8 million households in Sydney.  If they were all paying insurance for a what is now a low average of $800pa then the insurance industry is gobbling up nearly 1.5 billion dollars.  If 1000 Sydney homes burn down or get destroyed each year, then there is nearly 1.5 million dollars per house less other costs.  Most homes in Sydney would be replaced for less than half that amount.  There must be lots and lots of icing and cream that the industry enjoys.  Help me understand this if I am madly wrong.

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## OBBob

Hmm ... they have quite a good business plan in many respects. I also think it's probably a touch more complicated than how you have put it. For starters they cover more than just replacement of the house, there are other liabilities that have huge caps associated under these policies. They'll also only have a limited risk appetite and need to be able to handle wide spread disasters such as fire or flood that require payouts on mass and thus a certain constant liquidity level within the fund.  
One of the things that I find interesting is that there appears to be a lot of competition coming into the market ... but read the fine print and they are all backed by only a handful of insurers.  
Are you planning to run for parliament?  :Smilie:

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## John2b

Our neoliberal economic system has no notion of "reasonable profit" for a service offered. Be absolutely clear, insurers are in the business of making profit, not in the business of paying claims. Plus insurers are panicking about the effect of climate change and madly cross-insuring to spread risk, which means a fair proportion of the profits are moved across to the international re-insurance industry, which is also in the business of making money and not paying claims! Watch out for "exclusion creep" on your policy as another ploy of insurers to minimise their payout risks.

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## Blocklayer

Is it really only $800 pa in Sydney??? 
Normal house here (North QLD), just the house with no contents (if you can find insurance) is $2000 - $3000 pa and skyrocketing yearly.
And houses built after ~ 1983 (the vast majority) are built to cyclone code, so not likely a lot of damage in a cyclone. 
People here would jump at a chance to insure for $800 
.

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## johnc

> I don't like the insurance industry because of their greed and avoidance to paying up.  Anyway just giving home insurance a thought as premiums are going through the roof (despite people on this forum saying you can void your insurance if you don't do this and you don't do that...yawn). 
> I suspect there are close to 1.8 million households in Sydney.  If they were all paying insurance for a what is now a low average of $800pa then the insurance industry is gobbling up nearly 1.5 billion dollars.  If 1000 Sydney homes burn down or get destroyed each year, then there is nearly 1.5 million dollars per house less other costs.  Most homes in Sydney would be replaced for less than half that amount.  There must be lots and lots of icing and cream that the industry enjoys.  Help me understand this if I am madly wrong.

  Most of the insurers are listed on the ASX, in recent years their profits have reduced as a result of higher claims, particularly mass claims from fire and storm/flood, the icing is thinner. They have to keep a significant portion of the premium in reserves to cover claims, get a few disasters and they start to closely look at claims and put up premiums, they also have to deal with fraud and unrealistic expectations of some claimants. We don't want insurers to go broke because it hurts policy holders, we don't want them being over zealous when assessing claims either. I don't think insurers are rip off merchants but at times I think their approach to claims leaves a lot to be desired, as does the actions of some claimants.

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## JB1

I pay under $300 for house and contents in Melb with Coles Insurance. 
$200k building and $100k contents. 
AAMI don't base their premiums on value of the house, but by the number of bedrooms and construction type. 
My parents 50sq house is cheaper to insure than my 17sq house by a dollar or two! Hence why I moved to Coles.  
FYI I don't have flood cover. No known flooding in my area ever. No point paying for something that is very very unlikely to claim. I don't think it will increase my premiums much anyway.

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## phild01

> I pay under $300 for house and contents in Melb with Coles Insurance. 
> $200k building and $100k contents. 
> AAMI don't base their premiums on value of the house, but by the number of bedrooms and construction type. 
> My parents 50sq house is cheaper to insure than my 17sq house by a dollar or two! Hence why I moved to Coles.  
> FYI I don't have flood cover. No known flooding in my area ever. No point paying for something that is very very unlikely to claim. I don't think it will increase my premiums much anyway.

  Are you sure you are not under-insured. 
A friend got a renewal of $3000, he checked with AAMI and did it for half that.
I used to be with AAMI and their online quoting is a joke.  They wanted $1500 from me and said my replacement cost would be between $930,000 and $1.1m which was utter rubbish.  My replacement cost wouldn't even be half that.  Currently I am with Coles (hate to admit it) and the renewal is $650. 
All this includes $30,000 Contents cover.

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## JB1

Nope, owner built, so know exactly how much it cost.  
It's a small house.

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## phild01

> Nope, owner built, so know exactly how much it cost.  
> It's a small house.

  Be careful, while it cost you x amount to build, the insurance company will be overly optimistic with their considered opinion.  Removal cost needs to be factored in as well.
The insurance industry really irks me.  I should be able to say to them insure my house for x amount and if a quarter gets destroyed I want them to hand me x/4 of the insured amount.  No, they will say my house should have been insured for 2x and hand me x/8.

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## JB1

I do know the under insurance clause. 
I will insure for the cost of the house, nothing more, nothing less. No point overinsuring as you'll never get it paid out. 
Unlikely I will ever need the full amount paid, basically a fire. 
I won't be too sad, I'll prob spend a bit more and build a better house. 
Having said all that, I've insured my contents at full replacement cost. And I don't have any carpet. 
I noted you only have $30k of contents?

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## phild01

Contents doesn't concern me greatly as long as I can buy the essentials which is easy with that amount.
Like you I only want insurance in the event of fire or something crashing into the house.
I know I can rebuild for say 500k, which is much less than what the insurance companies estimate, and if my house burns down they will turn around and say to me that I was under-insured.  I won't get 500K but just half of this... or have I got this wrong.

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## JB1

You're Correct. I.e. value is $700k, you insure for $500k. Your payout for any claim will be 5/7th of the damage. 
However if you can prove that you can replace your existing house for $500k they can't use the under insurance clause.  
Are you sure you only have $30k of contents including carpet and curtains? Seem very very very low. I believe the insurance co would have a very strong argument that you were underinsured if you need to make a contents claim. 
That's why AAMI's buildings insurance is good. You don't have to nominate the value, you just have go be truthful on the number of bedrooms, contraction type, level of finish. So they can't pull the under insurance clause  Great for people like my parents who have a 50sq 3 bedroom house and garage.

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## phild01

I really hate the grubs.  If everything gets destroyed, they should be obligated to pay the sum insured for in full provided it doesn't exceed replacement values.  If I insure for 100K, they should pay this amount no questions asked; if I insure for 1M, then they can start asking questions, nah they are grubs.

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## JB1

Actually I agree with the under insurance clause. 
If your building is worth $500k and you insure it for $100k, the insurance company is actually taking on a much higher risk compares to insuring a $100k house for $100k. 
Reason is that there is close to 5 times higher chance of you claiming. 
For example, say you owned 5 units in one block. What you're proposing is that you only want to insure 1 unit but be covered for damage to any of the 5- but you understand if more than 1 unit gets damaged at the same time, you'll only be paid up to the value of 1 unit. 
While I don't like insurance companies, who does, I don't dislike them either. Like a lot of things in life, you get what you pay for.  
You always have the option to self insure (no insurance). But very few of us can 'afford' to do so.

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## phild01

Don't know anything about the under-insurance clause and will try and find out more.  But I certainly don't see any increased risk on their part for the lesser amount.  House burns to the ground then their only obligation is an agreed value and if I choose 100K then that is my bad luck, not theirs.
How would my chances of claiming be increased with a lesser amount, if half the house value is destroyed I would only be entitled to 50K, if only they could run a business honestly!

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## phild01

> For example, say you owned 5 units in one block. What you're proposing is that you only want to insure 1 unit but be covered for damage to any of the 5- but you understand if more than 1 unit gets damaged at the same time, you'll only be paid up to the value of 1 unit.

  What the!
That makes no sense.  If you insure 5 units for 100k and one is destroyed, entitlement payout would only be 20k in such a scenario.

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## barney118

> You're Correct. I.e. value is $700k, you insure for $500k. Your payout for any claim will be 5/7th of the damage.
> .

  I heard this about a friend who's house burnt down, so you pay for insurance for $500k but insurance will only pay out for $355k whoa being taken for a ride? They should payout 100% of limit insured for.  
Sent from my iPhone using Tapatalk

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## JB1

> What the!
> That makes no sense.  If you insure 5 units for 100k and one is destroyed, entitlement payout would only be 20k in such a scenario.

  That's not what I said, I said you insure only 1 of the 5 units for its true value (without specifying which one), but expect to be covered for all 5 units to the value of up to one unit. 
That's the same as insuring for $500k house for $100k. Think about it.

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## JB1

> Don't know anything about the under-insurance clause and will try and find out more.  But I certainly don't see any increased risk on their part for the lesser amount.  House burns to the ground then their only obligation is an agreed value and if I choose 100K then that is my bad luck, not theirs.
> How would my chances of claiming be increased with a lesser amount, if half the house value is destroyed I would only be entitled to 50K, if only they could run a business honestly!

  Because you have much higher likelihood of having $100k of damage on a $500k house, than $100k of damage on a $100k house. 
That's why they will only allow you to insure the full value of a building. 
If you told them that you only want to insure your lounge room only, that's a different story.

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## phild01

> That's not what I said, I said you insure only 1 of the 5 units for its true value (without specifying which one), but expect to be covered for all 5 units to the value of up to one unit. 
> That's the same as insuring for $500k house for $100k. Think about it.

  That still doesn't make any sense as you can't just insure one unit and expect all the rest to be covered. I don't know how you figure that out.  The insured unit would be identified on the policy to the exclusion of the others.

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## phild01

> Because you have much higher likelihood of having $100k of damage on a $500k house, than $100k of damage on a $100k house. 
> That's why they will only allow you to insure the full value of a building. 
> If you told them that you only want to insure your lounge room only, that's a different story.

  No, this would not be the case.  It would be a proportional payout.  'Likelihood' is a non factor.  Insurance companies deal in funny money values, similar to telco mobile plans.

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## JB1

I suggest you start your own insurance company then  :Smilie:

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## JB1

> I heard this about a friend who's house burnt down, so you pay for insurance for $500k but insurance will only pay out for $355k whoa being taken for a ride? They should payout 100% of limit insured for.  
> Sent from my iPhone using Tapatalk

  No, not $357k. The insurance payout will be $500k if 100% of the property is burnt to the ground- the insurance company will pay 5/7th of the $700k damage/loss. 
 The home owner will have to fork out 2/7th of the damage/loss, i.e. $200k. 
It's only murky when part of the house is damaged. In my above example, the insurance company will insure you for 5/7th of the property and the home owner will by default insure the remaining 2/7th him or her self.  
If a fire caused $500k of damage to your $700k house, the insurance company will use the under insurance clause and pay you $357k ($500 x [5/7]) and the owner will be responsible the remaining damage of $143 ($500k x [2/7]) 
What happened to your friend? I'm assuming the house partially burnt down.  
I don't work for an insurance company, but am pretty good at probability maths (but no where near as half as good as an actuary). 
The insurance companies are being sneaky about it, hence why they always stress that you should insure for the full value of the item.  
Here is more details The Underinsurance Clause - GIO

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## barney118

> No, not $357k. The insurance payout will be $500k if 100% of the property is burnt to the ground- the insurance company will pay 5/7th of the $700k damage/loss. 
>  The home owner will have to fork out 2/7th of the damage/loss, i.e. $200k. 
> It's only murky when part of the house is damaged. In my above example, the insurance company will insure you for 5/7th of the property and the home owner will by default insure the remaining 2/7th him or her self.  
> If a fire caused $500k of damage to your $700k house, the insurance company will use the under insurance clause and pay you $357k ($500 x [5/7]) and the owner will be responsible the remaining damage of $143 ($500k x [2/7]) 
> What happened to your friend? I'm assuming the house partially burnt down.  
> I don't work for an insurance company, but am pretty good at probability maths (but no where near as half as good as an actuary). 
> The insurance companies are being sneaky about it, hence why they always stress that you should insure for the full value of the item.  
> Here is more details The Underinsurance Clause - GIO

  I'm confused, if you suffer a full burn down for example they pay 100% $700k but like most fires (assumption here) part of the house is destroyed they pay 5/7 ths and expect you to fork out 2/7ths. I suppose it goes they wouldn't pay that to yourself to owner build either?  
Sent from my iPhone using Tapatalk

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## johnc

> I'm confused, if you suffer a full burn down for example they pay 100% $700k but like most fires (assumption here) part of the house is destroyed they pay 5/7 ths and expect you to fork out 2/7ths. I suppose it goes they wouldn't pay that to yourself to owner build either?  
> Sent from my iPhone using Tapatalk

  Depends on the policy, if they decide to rebuild for you (often the case with partial loss) there may not be a cash option. If they pay the claim out in full they aren't interested in who does the rebuild be it a builder or owner builder the cash payment is unchanged. If you insure for $500,000 and the demolition/rebuild estimated amount is $500,000 then that is the amount you get. If you insure for more you still get the $500,000 nothing more, if for less it is pro rata on any claim. If it is a partial loss as in this example a 5/7th's payout would mean the cost to return the structure to its original condition is that portion of a full rebuild so you wouldn't be up for any extra. If you decided to knock down what remained that is not the insurers problem. Of course if the 2/7th's was not salvageable you have an issue with the assessor, in which case you would seek a full payout. This can happen but not often.

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## JB1

> I'm confused, if you suffer a full burn down for example they pay 100% $700k but like most fires (assumption here) part of the house is destroyed they pay 5/7 ths and expect you to fork out 2/7ths. I suppose it goes they wouldn't pay that to yourself to owner build either?  
> Sent from my iPhone using Tapatalk

  Full burn down, you'll only get $500k as that is what you insured for. 
If you suffer $600k of damage and you're insured for $500k, they will pay you $600k x 5/7th or $428k.

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## JB1

> If you insure for $500,000 and the demolition/rebuild estimated amount is $500,000 then that is the amount you get. If you insure for more you still get the $500,000 nothing more, if for less it is pro rata on any claim. If it is a partial loss as in this example a 5/7th's payout would mean the cost to return the structure to its original condition is that portion of a full rebuild so you wouldn't be up for any extra.

  If the building was valued at $700k and you insured for $500k, you will be out of pocket in the event of ANY claim (assuming the insurance company can prove the house is valued at more than $500k i.e. $700k).    
Most people understand and can accept the fact if a fire burned the whole house, you'll only get $500k and be out of pocket by $200k.  
What most people don't understand and can't accept is if you had damage of $500k, you won't get the full $500k and be out of pocket to the tune of 2/7th of the damage bill.

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## David.Elliott

In the Roleystone fires here in the west the some things have become apparent, and I'm more of an interested observer that actually following the story...so happy/expect to be corrected.
the cost of demo...quite a number of properties had CCA pine and asbestos on them. The cost of the demos/clearing was therefore really big. And the insured value of the properties, if this was factored in came up short.
I understand the commonwealth  and or state govt came to the party with a demo allowance??? The other catch that I believe presented was the building codes had changed so like for like was not really possible...so more additional costs...
Co insurance is a big thing, especially in business. I had a broker looking after mine. The challenge was to have enough cover to negate being called on the co-insurance, but not so much to waste money...

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## phild01

> I suggest you start your own insurance company then

  Sure, and because of apathy I end up like the mob!

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## johnc

> If the building was valued at $700k and you insured for $500k, you will be out of pocket in the event of ANY claim (assuming the insurance company can prove the house is valued at more than $500k i.e. $700k).    
> Most people understand and can accept the fact if a fire burned the whole house, you'll only get $500k and be out of pocket by $200k.  
> What most people don't understand and can't accept is if you had damage of $500k, you won't get the full $500k and be out of pocket to the tune of 2/7th of the damage bill.

  Quite right, it is about actuarial risk, if it wasn't pro rata you would need to pay a higher premium to cover the increased claims paid across that risk group.

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## davewastech

Sorry very late reply,
Something we noticed moving in recent years from Perth to Melbourne and now to Sydney - the price of most kinds of insurance increases in the same order (Sydney most expensive of those three).
I asked an insurance salesperson why this is so. Her answer was that house and car insurance was cheapest in Adelaide and Perth because adverse weather events are less there. Their billion dollar risks are hail, floods, cyclones and fire. 
I better not move into cyclone country, or anywhere near bush :Biggrin: 
Davewastech

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## cheapfame

I think that in this country insurance companies cop allot of unfair criticism. 
What people tend to forget or not be told, is that large numbers of policy holders are across the board subsidising some very high risk suburbs and towns. QLD floods / cyclones and tropical storms and hail. These large events occur almost annually. The cost to repair and rebuild for these companies is enormous. Insuring your home and selecting a policy which works for you, your home and lifestyle is critical. 
Some insurers, the youi's and other online brands are more than likely the ones short changing people on settlements and coverage due to the "savings" which can be made on premiums. Some of these new players in the market are owned by parent companies overseas. 
Don't forget your social conscience once and a while. I know of a particular Australian owned and operated insurer which employs thousands of hard working men and women and makes strong contributions within the community to achieve positive outcomes for those in need. Shareholders, average aussie punters getting strong dividends and returns on investment.  
/rant

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