The risks of paying less for your insurance


The cost of living is increasing, and everyone is looking for ways to save. One way of finding potential savings is adjusting your insurance policy – like by choosing a higher excess to lower your premium, lowering your sum insured, or switching insurers entirely. But these budget-saving measures could increase your risk of potential out-of-pocket costs – either by leaving you without cover that fully meets your needs, or by requiring you to pay a lot more at claim time.

If you’re looking for some ways to save on your home or contents insurance, AAMI’s got some tips for you!

Ways to save

Not all policies are the same

Your insurance should meet your requirements – and that doesn’t just mean your budget. It should also do the thing you have it for – that is, adequately cover your home, car, or contents (or whatever you have insured!). Otherwise, you may be underinsured, and that could mean a lot of out-of-pocket costs if an incident occurs. Make sure you’re comparing policies carefully if you’re shopping around!

When looking for a cheaper deal, people may zero in on cost and forego any other considerations. There are a number of other factors to keep in mind when choosing an insurer, like:

  • their reputation
  • the customer and claims experience, and
  • the extent of cover actually on offer.

A little bit of extra research can save on time, effort and money, and provide you peace of mind down the road. To understand what’s included in a policy, read the relevant Product Disclosure Statement. This details a policy’s inclusions and exclusions. You can find AAMI’s policy documents here.

Things to consider before increasing your excess

One of the easier ways to lower your premium is to increase your excess. While this may work well for some people’s circumstances, it may not for others.

When someone increases their excess to reduce their premium, they will likely be saving money in the short term. But, they may want to consider what they’re prepared to pay in the event of a claim. If they need to make multiple excess payable claims, these costs can build up quickly.

The appropriate excess is unique to each individual, so carefully consider what works for you and what level of risk you’re comfortable with.

Check your policy details

Watch out for underinsurance

Another lever you can use to tweak your premium is your sum insured – the amount your home or contents is actually insured for.

At AAMI, we’ll review your sum insured at renewal, and this amount may be higher than what you had last year due to inflation, increased building costs and replacement costs. You can adjust this amount within a set range. However, if you choose to set your sum insured to a lower value, you may be at risk of underinsurance. This can mean that you may not be adequately covered in the event of a claim where significant damage has occurred, or a total loss.

You can read more about avoiding underinsurance here, but the short of it is to regularly review your sum insured against the overall value of your home or contents, and update it accordingly. Carefully examine your own circumstances to identify a figure that sits right with you and your needs before making a change. If you want a bit of help, you can use AAMI’s Home Building and Contents calculators.

AAMI offers Complete Replacement Cover as an optional cover on Home Building Insurance policy, which is an alternative to setting a specific sum insured. If your home needs to be repaired or rebuilt after an insured event, we’ll offer to do so as it was, or pay you the amount of the assessed quote to do so. We’ll also cover any spikes in building costs, meaning you won’t be left out of pocket. Since your home will be built as it was, it helps in removing the risk of being underinsured – as the name says, it’s a complete replacement! Some exclusions apply, refer to the PDS for details.

Read more:

Insurance issued by AAI Limited ABN 48 005 297 807 trading as AAMI. Read the Product Disclosure Statement before buying this insurance. The Target Market Determination is also available.

This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.

The information is intended to be of general nature only. Subject to any rights you may have under any law, we do not accept any legal responsibility for any loss or damage, including loss of business or profits or any other indirect loss, incurred as a result of reliance upon the information. Please make your own enquiries.