Risk of underinsurance
Not enough cover
Underinsurance is when you don't have enough insurance to cover
all the costs of rebuilding your home. You are considered to be
underinsured if your insurance covers less than 90% of the
Increasing your insurance cover may not cost very much, and you
may even be able to get more cover for the same or a lower
Why you may be underinsured
You could be underinsured because:
- It's hard to estimate what it costs to rebuild a home
- Your insurance policy may be old (more than 3 years) and you
may not have updated the level of cover needed
- You may have completed renovations which increase the value of
You can also be underinsured for your home contents if you don't
have enough home contents insurance to replace your things,
especially your jewellery and collections.
Check your policy now
Most people only read their policy when they need to make a
claim. Unfortunately, by that time it's often too late. Check your
policy now to see how much your insurer will pay and under what
circumstances. Also check when your insurer will reject a
When working out how much cover you need, consider the
possibility that your whole house could be destroyed, for example,
by a bushfire or other natural disaster. Does your policy provide
enough insurance to cover the cost of rebuilding your house and any
extra costs you might incur? See estimating rebuilding costs
and home insurance
Also see storms and fires for information on
insurance for natural disasters.
'Total replacement' policies
have less risk
Policies with the lowest risk of
underinsurance are 'total replacement' policies, where the
insurer agrees to pay the costs of replacing your building to the
standard it was in before it was damaged or destroyed.
'Sum-insured' policies have a slightly higher risk of
underinsurance. You will be underinsured if there is a gap between
the estimated rebuilding costs and the actual rebuilding costs.
Some sum-insured policies also offer an 'extended cover' policy
that provides up to 30% on top of the sum insured in the event of a
total loss - this is a good way to reduce the risk of
underinsurance. Make sure you read and understand the
conditions that apply to this type of policy.
Whatever type of home insurance policy you have,
there is always a risk of underinsurance. The golden rule is to get
enough cover for the worst case scenario.
Last updated: 20 Jun 2017