The Most Expensive Mistake in Home Insurance
Underinsurance happens when your sum insured — the amount you've told your insurer it would cost to rebuild your home — is lower than the real cost of rebuilding it. If a total loss occurs, you're paid up to your sum insured and not a cent more, regardless of what it actually costs to rebuild.
Why It Happens So Easily
Rebuild costs move independently of property values and can spike sharply after a widespread disaster event, when demand for builders and materials surges across an entire region at once. A sum insured set accurately three years ago can be thousands of dollars short today without you having done anything wrong.
How to Get It Right
- Use your insurer's online rebuild calculator or the Insurance Council of Australia's calculator as a starting point, not a final answer
- Get a professional rebuild valuation, especially for older homes, architecturally unusual homes, or homes with expensive fixtures
- Check whether your policy is 'total replacement' (rebuilds regardless of cost) or a fixed sum insured (pays out only up to the stated amount) — total replacement policies remove this risk entirely, usually for a higher premium
- Revisit your sum insured every year, and immediately after any renovation
The Buffer Some Insurers Offer
A number of insurers now build in a 10–30% buffer above your declared sum insured, or apply automatic inflation adjustments during the policy year, specifically to soften the impact of underinsurance without you needing to get every valuation perfectly right.
This page is for educational purposes and isn't personalised financial advice. Premiums, terms and eligibility vary by insurer, state and individual circumstances — always check the Product Disclosure Statement (PDS) before buying.