Risk of underinsurance
Not enough cover for your home
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 home insurance cover may not cost very much, and
you may even be able to get more cover for the same or a lower
Why your home may be
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 if you don't have enough contents
insurance to replace your things, especially your jewellery and
How to check your home insurance
Most people only read their insurance 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
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.
Do total replacement policies
reduce your risk?
'Total replacement' policies have a lower risk of underinsurance
because the insurer agrees to either rebuild your building to the
standard it was in before it was damaged or destroyed, or pay you
the assessed cost to rebuild.
'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: 07 Jul 2017