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The cost of under insuring

Make sure your house and contents insurance is regularly updated  16000646 800521486 0 0 14090665 300

While many individuals have insurance, some are not ensuring they are covered at the appropriate level to meet their needs should the worst happen.

There are different forms of insurance to consider - life, income protection, house and contents insurance - and each needs to be calculated with enough room to cover you in an emergency.

Life insurance

While it is not the happiest conversation to have with your loved ones, it is important to plan ahead and be prepared.

Over 95 per cent of Australians do not have adequate cover for their family, according to Rice Warner Actuaries.

Their research indicates at least one in 18 families loses a working parent every day in the country.

Life insurance can sometimes also cover you should you need to stop working as a result of illness, disability or injury. Around 17,040 employed people, between the ages of 20 and 64 living as a part of a couple with children, had to take time off work because of an injury or disability in 2007. This is according to the 2008 Household, Income and Labour Dynamics report in Australia.

This amounts to around one in every 47 families. It can be a struggle for some to deal with both financial troubles as well as injury until the person has recovered.

If you have the right level of insurance set up, your family should be able to live on the income they receive without sacrificing their lifestyle significantly.

Underinsurance is a problem in Australia. According to Lifewise, only four per cent of the population with children have adequate levels of life insurance.

This kind of insurance is more about protecting your family and creating a safeguard in the event something happens to you.

Income protection insurance

This type of insurance will provide you with an appropriate level of cover should you or your partner need to stop working as a result of injury or illness.

The typical family facing injury or illness will lose around half their income following an incident, which is a serious dent in the budget for most, according to the 2010 Lifewise/NATSEM underinsurance report.

Serious illness or accidents impact around one in five working age parents during the average 45 year span of their working lives.

While most people believe they can rely on savings, government assistance or selling assets as a last resort, it is important to work out your budget and insure yourself so you will not end up in financial strife.

It is particularly important that you accurately work out how much you really need, particularly if you have debt to pay.

Calculate how much it will cost you to maintain your current lifestyle and to raise your children, if you have any.

You may want to make up a yearly budget calendar so you factor in seasonal costs, such as Christmas presents, school books, uniforms and other incidentals.

Make sure you add a bit extra for unexpected costs, for example if your car broke down or if you needed to do repair work on your property.

Insuring your income can providemore than just financial reward, according to Lifewise, who say that financial burdens created by illness and accident can often cause pressure leading to family and personal breakdowns.

House and contents insurance

Insurance policyholders set up a financial limit, or sum-insured limit that is the maximum value of your home that will be paid out if need be.

The problem many people face if their properties are undervalued is that they might not be able to replace their assets in an emergency and rebuild their house.

If you underestimate the value of your property and your contents, your payout will be smaller so you may not be able to replace everything or purchase a house in a similar condition.

The Australian Insurance Council says house and contents insurance should always match the replacement value of your property and assets. That is to say, you should be able to use your premiums to purchase a property that is the same value as the one that has been damaged.

Policies should be regularly updated to ensure you are covered for the current value of the property, as if you have done any costly renovations you may need to raise the level of insurance.

The same goes if you have made any big purchases such as jewellery or artwork. Another way to make sure your policy is up to date is to keep an inventory of household goods.

If you are underinsured, you may have to pay the difference between your insurance costs and the amount you will require to rebuild your property.

The Insurance Council recommend you re-evaluate the contents of your house and your policy on a yearly basis to prevent underinsurance.

It is up to you as the consumer to maintain the appropriate amount of cover on your policy and contact your insurer if there are any changes or if you have any questions.