Don't blow your cover

Nobody likes paying something for nothing, so when it comes to general insurance it pays to shop around.

Underinsurance is a recognised problem in Australia, which generally means people are paying for insurance that may not cover them for the loss or damage caused to their home or car in the event of a claim.

Recent surveys conducted by consumer watchdog Choice found differences in the premiums charged by insurance companies offering home-and-contents and car insurance could be hundreds of dollars, depending on the information consumers give and the definitions insurers use.

Underinsurance can be a costly mistake, says Choice spokesman Christopher Zinn.

The important thing with general insurance is to make sure you are getting the cover you need," Zimm says. "It is worth putting in a bit of effort to make sure you are covered for what you think you are.

The other costly mistake people make is to receive the insurance premium renewal notice in the mail and just pay it without reviewing the policy.

When it comes time to renew your insurance, check if there is a better deal. There are plenty of online tools available, he says.

HOME AND CONTENTS

Factors that will influence the premium you pay for your home-and-contents insurance may include location, the age of the building and how much insurance you elect to put on the building and what is inside.

While a higher sum insured means a more expensive premium, it may not be as much as you think.

In its home-insurance survey, Choice obtained quotes for a three-bedroom house in a high-risk and a low-risk suburb in each state. Zinn says it's possible to pay up to 20 per cent more in premium to get 50 per cent more cover.

It may not cost that much more to get a lot more cover, he says.

By way of example, this meant insuring the house for $300,000 instead of $200,000 and the contents for $75,000 instead of $50,000 (based on a policy with a $300 excess).

Reed Construction Data estimates up to 80 per cent of home owners are underinsured by an average of 34 per cent. What this would mean if your house was insured for $250,000 is that in reality you'd need about $375,000 to rebuild it an extra $125,000 above the sum for which it's insured.

While the Insurance Council of Australia estimated in 2002 that significantly fewer than 80 per cent of homes were underinsured, it agrees underinsurance is a problem.

According to Choice, one advance in consumer protection is where policies protect against underinsurance if a house is destroyed.

Zinn says that while quite strong competition in the industry may help to keep premiums down, the real differences between the big players is in the definitions used, such as "what is a flood".

People might think a flood is when water comes in but insurance companies have different definitions," he says.

"Some cover flash flooding after heavy rain if it was caused by man-made waterways, such as a stormwater drain, but not if it was caused by water coming from a water-catchment system, such as from a creek flowing behind your property."

The most common claims for home insurance are for severe weather such as storm damage, accidental glass breakage, damage caused by a burst pipe and motor burnout.

Choice checked six scenarios around Australia and found average price differences of up to $350 a year for home-defined events, $380 for home accidental damage, $300 for contents defined events and $410 for contents accidental damage policies.

Accidental damage can add 20 per cent to the home cover premium and 33 per cent to the contents premium, so check what it covers, Zinn says.

Insurance companies may reward you for not making claims  generally known as a no-claim bonus. How it may work is that each year at renewal your policy moves up a level of no-claim bonus. If it starts at 0 per cent it may go up in 5 per cent increments, until 25 per cent. If a claim is made you may go down one or two levels of no-claim bonus.

The no-claim bonus discount is then applied as part of the pricing to the premium.

CAR INSURANCE

The competition within the car insurance industry may not be as great as one would like but it still pays to shop around.

Shopping around for comprehensive cover can deliver big savings, especially for young drivers," Zinn says.

Choice's comparison across 21 insurers and quotes for four scenarios found average annual savings across all states of: $1500 for a young driver, $1030 for a family with a young driver, $495 for an adult driver and $440 for an older driver.

There are a number of ways to reduce the premium, much of which depends on the car you drive and where you live.

Most insurers calculate the premium based on a combination of "pricing factors" including: the suburb where the vehicle is kept; the age and gender of owners and drivers of the vehicle; the vehicle, including any modifications, security features and its fuel efficiency; and the number and type of claims and incidents that all owners and drivers have had in the past five years.

If a no-claim discount is offered you may be eligible, as is the case with a multi policy or loyalty discount.

The amount of excess someone chooses to pay can have a big impact, where the greater the excess the lower the premium. If you choose to remove your basic excess an additional premium is added.

Optional extras such as a hire car while your car is being repaired and the cost of choosing to pay by the month can add to the premium.

Not surprisingly, older cars are considered a higher risk, as are younger drivers or drivers with a short driving history.

According to the NRMA, statistics show that younger drivers are more likely to be involved in vehicle accidents and males traditionally have caused more crashes than females.

Some companies offer a discount on the premium if you nominate certain drivers only or restrict the use of your car to drivers over a certain age (usually 25).

This is worth reviewing and remembering. If you do let an excluded person drive and there is an accident, you may have to pay a high additional excess or you may not be covered at all.

Where you park the car will make a difference including the suburb and town in which you live.

The NRMA says a car may be at a higher risk of car theft or malicious damage if its regular parking place is in an inner city laneway compared to a garage in a quiet country town.

We also know that the majority of collisions occur just a few kilometres away from a customer's home so the suburb a vehicle is kept in can help to indicate how likely it is to have a collision, it says.

Similar vehicles may cost different amounts to repair if damaged. This is due to the cost of parts and the "repairability" of a car (how easy it is to repair).

Certain models of fuel efficient cars will also be priced at a lower rate with some insurance companies.

If you use your vehicle as a tool of trade  for instance you are a courier or on the road everyday as a salesperson  it is considered that you are much more likely to be in a collision than someone who just uses his or her vehicle privately.

Most companies offer a no-claim discount that rewards customers for their good driving history. Savings start at 25 per cent and go as high as 65 per cent.

DISCOUNTS

There are a number of possible driver discounts available. They may be based on rating factors applied to the driver, or given as a percentage discount or premium rebate once the premium has been calculated.

Multi-policy if you have more than one policy with the same company.

Loyalty for long-term customers.

Security for an approved immobiliser, GPS device or alarm.

Pensioner discounts.

Discounts for young drivers who have done a skilled driver's course.

Annual payment, rather than by the month.

Discounts if you purchase the insurance online.

VIRGIN MOVE

STICKING with its long-held view that duopolies don't generally translate to good deals for consumers, Virgin Money this month entered the local car insurance market with its own offering.

It is classic Virgin territory to look at a market that's dominated by two major players IAG and Suncorp which control 12 major brands and try to give the industry a bit of a shake-up, says the managing director of Virgin Money, Matt Baxby.

Its first move is to challenge the notion that car insurance premiums usually rise each year, while the value of cars falls, by offering capped premiums for the first two years.

Baxby says with price being an important factor for consumers, it would try to create some certainty for consumers by capping the premiums. With average premiums across the industry on the rise, if all Australian motorists capped their premiums for two years, they could save over $200 million, he says.

Virgin is also giving an additional month's insurance for free when customers sign up online.

Baxby says with 10 million registered vehicles in Australia but only 1.2 million people actively changing their insurance companies each year, there was inertia among consumers.

The reality is it is not too difficult to go online and test the pricing every year.

Baxby says car insurance is the first in a range of new financial-services products Virgin Money will launch, with others due for release in the first quarter of 2010.

CASE STUDY

RAY and Ruth Petersen have periodically compared the insurance premium they were paying on their home of 33 years in Castle Hill, NSW.

Mostly, they found the range of premiums on offer to be in the same range to the one they had been paying to the NRMA for almost three decades.

A loyalty discount plus a discount for being over 55 years of age made the premium competitive and a good reason to stay loyal to the NRMA.

But it was their first claim following a massive hail storm in 2007 that convinced them the premiums had been worth paying all those years.

Within two days of a large gum tree falling and destroying about one third of their home, there was an assessor on site to begin processing their claim.

If we hadn't been insured, we would have been in a bit of a pickle because we would not have had the money to put the house back together, Ray says.

They came to the party with new-for-old replacement and everything we needed, including alternative accommodation while the house was being rebuilt. We looked after them with our premiums all those years and they looked after us.

Even if another insurance company came along and offered us a much lower premium, there is no great reason why we would want to change. It might have been different if they hadn't been so helpful, he says.

With the gum tree now gone from their garden and green grass growing in its place, the one consolation is it will never happen again, Ray says.