Paul Clitheroe
Paul Clitheroe

New money initiatives for 2014

THIS year some new initiatives will come on board that are worth knowing about. They could change the way you manage your money.

To begin with, from February, banks will issue a reminder to home loan customers of the need to have adequate home insurance in place.

The vast majority of Australian home owners do have building cover in place. However the big risk is underinsurance. This is where the cost to rebuild your home exceeds the sum it's insured for, potentially leaving the home owner significantly out of pocket.

No matter whether you have a home loan with a bank or other type of lender, when your home insurance renewal arrives in the mail, it's worth taking the time to check you're getting a competitive premium.

Just as importantly, think about whether the insured value of your property reasonably reflects what it could cost to rebuild. If you've completed renovations in the last year for instance, your home and contents cover should reflect the value these have added to your home.

For the record, industry figures show around one in ten households deliberately underestimate the likely replacement cost of their home and belongings - in an effort to save on premiums.

If you're doing this - don't, it's completely false economy. If an insurer concludes your property is underinsured by say, 30%, it may reduce any claim payout by a similar percentage.

Furthermore, you will find in many cases that the difference in premiums between being underinsured by say 25%, and being insured to the full value of the property, is not much, and much less than you would expect.

Skimping on fully insuring your home is not the right way to save. The right way to save on insurance is to shop around between insurers, and to choose one offering the right coverage at a competitive price.

Another change set to get underway in March is the arrival of 'comprehensive credit reporting'.

At present, credit reference agencies like Dun & Bradstreet and Veda hold details on each of us about credit applications we've made and credit defaults (non-payments). Banks and other lenders use this information when we apply for credit, however the details available at present don't paint a full picture.

From March, lenders will be able to see additional information like when you've paid bills on time, and when you've fallen behind and made a late payment.

The idea here is that lenders will get a clearer picture of how you manage debt and bills. In theory, consumers who demonstrate good credit behaviour - paying bills on time, can be rewarded with better deal.

The bottom line is that it's more important than ever to stay on top of bills and loan or credit card repayments. It could be the difference between securing a competitively priced loan or paying a higher rate - or getting knocked back altogether.

Finally, from mid-year you could have yet another PIN number to remember, with signatures for credit card authorisations due to be phased out from July.

On the plus side, using a PIN saves time at the check out. It also helps to safeguard against lost or stolen cards because it's much harder for crims to guess a 4- or 6-digit PIN than fake your signature.

So if you still use a signature-based card expect a letter from your credit card issuer over the coming months explaining the new system.

Be aware, PINs may be more secure but it's still up to you the card holder to review your credit card statements to check that all the transactions look right.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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