Why you should make it a policy to know your insurance

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How well do you understand your home insurance policy? Are you confident you are covered for the risks that might occur to your property? Do you know of any exclusions that apply to your policy?

New research by the Insurance Council of Australia has found that while most people consider that they’ve looked into the detail of their insurance policies, general understanding of insurance policies is actually quite poor.

The research explored consumer experiences for the most commonly purchased general insurance products, including motor, home building, home contents and travel policies.

PDS not widely read when purchasing insurance

The Product Disclosure Statement (PDS) is a legal document that forms part of your insurance contract. It provides you with a full description of the terms and restrictions of the insurance policy. It documents the features, benefits, costs, exclusions and associated risks.

The PDS helps you understand the insurance policy and allows you to compare different policies so you can make an informed decision.

What the Insurance Council research found, however, is that most people don’t read the PDS at all when buying insurance.

Those most likely to read the PDS before purchasing a policy? Well, they are generally those who have previously made a claim.

So, if most people aren’t reading the PDS, how do they decide on which insurance policy to purchase?

According to the report’s findings, most consumers consider the price and level of cover as the only “detail” they need in order to make an informed decision.

Wide gap between perceived and actual knowledge

While most consumers feel confident that they understand their policy, comprehension was actually quite poor among those taking part in the study.

“An overwhelming majority (93%) of respondents did not feel they have any gaps in understanding. When prompted, most respondents indicated that they were completely or mostly confident in understanding the details of their policy.”

But when the researchers asked those same participants specific questions to test their knowledge of generic policy exclusions and limits, they found that: “There was generally a poor understanding of policy exclusions and limits, which is at odds with consumer confidence in their own understanding.”

“I decided to go with AAMI as I already hold a policy for my car with them and I found that there are too many companies out there and in the end was getting confused and had an information overload. I just wanted something quick and easy and found myself in a sea of companies.”
Research participant

For those who’ve purchased home building and contents policies, there seems to be some confusion around the type of policy purchased.

For example, almost a quarter of home building (22%) and home contents (23%) respondents didn’t know whether they had purchased a listed events or accidental damage policy.

And while 33% of respondents indicated they had purchased a total replacement policy, the Insurance Council estimates that only around 17% of policies written are for total replacement. These figures suggest that at least some consumers are under the wrong impression that they have a total replacement policy.

5 out of 10 are aware of the different types of home building or contents insurance policies
Source: Consumer Research on General Insurance Product Disclosures, Research findings report, February 2017, Insurance Council of Australia.

Specific risks not taken into account

When deciding on an insurance policy, many consumers don’t consider the specific risks that they need to insure against, the report found.

“Data suggests strongly that consumers are not considering in detail the types of policies, key inclusions or product options that would be appropriate for their risks.”

In particular, half of respondents indicated that they were not aware of the different types (listed events vs accidental damage) of home building (55%) and contents (52%) policies prior to their purchase.

“Given my budget, the broker came back with most of what I needed. Basically I had to sacrifice some of my foundation for the price I paid, but I know I got a good deal and was pretty happy with that.”
Research participant

How an Insurance Broker can help

Choosing the right insurance policy for your needs is not always easy with the multitude of policies from different insurers available to you. Making a decision based solely on price and level of cover, without considering the relevant risks, or exclusions that may apply to the policy, could cost you dearly if you are unable to make a claim later on.

This is where a Westlawn Insurance Broker can help. With access to competitive insurance policies from a wide range of leading and specialist insurers, a Westlawn Insurance Broker can help you find the right policy based on your needs and the risks that apply to your specific situation.

As a qualified professionals, we understand insurance policies (including the fine print) and we can explain everything to you in plain language. We can assist with your application, and if you need to make a claim, we can assist you with that too.

Here are 5 reasons to talk to an Insurance Broker before buying insurance.

Contact a Westlawn Insurance Brokers Coffs Harbou today

27 February 2017

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