Working out how much to insure for

Whether you are organising insurance for your home, contents, car or health, it can be a tricky business to work out exactly how much you will need to have.

Here are some tips to help you work out the right amount you will need cover for.

House insurance

This type of insurance is for homeowners and is designed to protect your investment in the advent of a fire, earthquake, slip or other natural disaster, while contents insurance protects all the items in your property.

If you own a home, you can often get these two forms of insurance in a package deal, which will make it cheaper for you to be covered.

To work out how much to insure your house for, you first need to decide on the level of insurance you would like to opt for, whether it be total replacement value, sum insured or sum-insured plus margin policies.

Total replacement will rebuild or repair your home in its entirety and pay for all the fees involved in this process.

Sum-insurance policies cover the amount you and your insurer have agreed on when the policy was signed. If it is damaged or destroyed they will pay that value to have it fixed or rebuilt - this does not account for any changes in building costs over time.

However, if you opt for sum-insured plus margin, you will be entitled to that amount plus a little bit extra - usually around 10-25 per cent - which will prevent you from being underinsured.

Once you've decided which kind of policy to go for, you will need to work out how much it would cost you to rebuild your home to a similar standard if something did go wrong.

There are several online tools you could use to work out this value. Alternatively, getting a builder, surveyor or valuer's report is another option to ensure you have the correct amount going forward.

If you underestimate this cost you might be forced to pay more if something did go wrong, and on the other hand if you overestimate you might be paying more than you need to on your premiums.

Contents insurance

All consumers should have this type of insurance, according to the Australian Insurance Council (AIC) as it covers you for all the items of value inside your house, even if you are renting.

When calculating the value of your home's goods, you may want to discuss with your insurer if you have any special items of value. These goods, such as expensive jewellery or works of art, might be best insured separately.

It is important to update and review your policy regularly if you have this type of insurance, particularly if you have purchased new items recently. One idea the AIC suggests is keeping a list of common household items as this will make it easier to make a claim if possible.

It can be easy to underestimate the value of your contents, so perhaps you could set out a date every year where you can reevaluate your policy.

Vehicle insurance

To choose the correct amount to insure your vehicle for, you need to think about what level of insurance you wish to aim for.

Third party insurance is the minimum standard and is compulsory across all states and territories. It provides compensation for any bodily injuries sustained to others by your vehicle. This type of insurance does not cover you for any damage to your own vehicle, however.

This could be a good option if you do not have a high value car or if you are a younger driver, as those under age 25 may need to pay extra for comprehensive car insurance as they are a high risk group.

You could also opt to add fire and theft insurance to your compulsory third party insurance and will provide an additional level of cover for fire and theft, but not for collision.

Comprehensive insurance might be a better type to choose if you want a higher level of cover, as this will help you out if your vehicle is damaged, stolen, you have an accident or if damage is caused to you car, whether it be by the weather or maliciously.

Health insurance

If you are an Australian resident, the public system, Medicare, will cover you for healthcare. However, this may not encompass everything, so deciding to take out private health care can give you a broader range of treatment options.

There are two main types of health insurance - hospital and ancillary. Hospital insurance will cover you for surgery and other appointments while ancillary will also cover you for things such as dental and physiotherapy treatments.

You can choose to have both of these options of 'mix and match' your options to create a package to suit your needs.

if you are curious as to which treatments are covered by hospital insurance, it may be worth reading the Medicare Benefits Schedule as most of these items will be covered.  However, elective cosmetic surgery or laser eye surgery most probably won't be included in this kind of policy.

You can choose from a more extensive cover, medium or basic cover. What you decide upon likely depends on your medical history and what your budget is.

Posted by Richard West.