Finder makes money from featured partners, but editorial opinions are our own.

Underinsurance protection

Around 80% of homes in Australia are underinsured, according to the ICA – but there's ways to protect yourself.

What you need to know

  • Underinsurance is when you do not insure your home for the right amount.
  • If your home was destroyed and you were underinsured, you may not be able to afford to rebuild.
  • Insurers offer a few different ways to help you avoid underinsurance.

What is underinsurance?

Underinsurance is when someone does not have adequate insurance to cover the cost of damage or loss to their home or their belongings.

When you take out home insurance, you will be asked how much you want to insure your home for – this is typically referred to as the sum insured. This is the amount it would cost to rebuild your home if it was completely destroyed.

Say for example, you select a sum insured amount of $500,000 but it actually costs $700,000 to rebuild, you would be $200,000 out of pocket if your home was destroyed by an insured event such as a fire, storm or flood.

What happens if I am underinsured?

If you're underinsured and in a position where you have to make a claim, you won't receive the full cost for the damage done. You will only receive up to your sum insured amount.

If your home is completely destroyed, this could lead to you being thousands, or even hundreds of thousands, out of pocket – if you were to rebuild it to its original condition.

In some cases, underinsurance forces people to settle for a rebuild that is smaller than what they originally had or relocate to a cheaper area.

According to the Cordell Construction Cost Index, the minimum construction costs to rebuild a home have increased 18% from 2019 to 2022. That includes the costs of timber increasing by 20% and cost of bricklaying alone going up by 45%. Staggering increases, especially when we consider that close to every home that requires repair or rebuild will need to use services such as these.

Tips to avoid underinsurance

Number 1

Use an online calculator

Your sum insured is the amount your home would cost to rebuild if it was totally destroyed. You typically need to calculate this amount yourself so it's worth using a building and contents insurance calculator like the one offered by the Insurance Council of Australia.

Number 2

Create a list of all your items

"A good habit that I recommend to customers is to go around the house and list out all of the things you own and should be included in your insurance coverage," says Angelo Azar. This is a really important step if you also have your contents insured – it helps you build a much clearer idea of how much your home and all your belongings are worth.

Number 3

Check what you're covered for

Check the product disclosure statement to make sure that you're covered for demolition, removal of debris and redesign costs. A comprehensive home insurance policy, such as one offered by Budget Direct, Honey and Youi, should cover these costs in addition to your sum insured (often for around 10% or 20% of your sum insured). So for example, if your home is insured for $500,000, you will receive an additional amount for up to $50,000 or $100,000 to pay for removal of debris and extra rebuilding costs. Watch out for insurers that offer a flat fee of around $15,000 for these costs, like Everyday and Aus Seniors. This may not be enough to cover the costs.

Number 4

Consider a sum insured safeguard

Some insurers offer a sum insured safeguard as an optional extra. This is a safety net that provided up to an additional 30% of cover on top of your rebuild costs (your sum insured). For example, if your sum insured is $600,000 but it costs $800,000 to rebuild your home, you would be $200,000 out of pocket, unless you had a sum insured safeguard. The other alternative is total replacement cover which pays for the full rebuild costs.

Are you renovating?
"Renovations not only cost money to complete, but also increase the value and rebuild costs of our homes - more reason to make sure that we're adequately covered through home insurance to make sure those renovations too are included," says Azar.

Get underinsurance protection

Name Product Fire, Storm & Theft Damage Rebuilding & Repairs to your Home Accidental Damage to Home or Belongings Sum Insured Safeguard Full Building Replacement
Budget Direct Home & Contents Insurance
BonusFinder Award Finalist
Budget Direct Home & Contents Insurance
Our verdict: The most popular insurer on Finder, Budget Direct prioritises low-cost cover and gives you up to 30% off your first year for new combined policies purchased online. This is a big reason it won this year’s Finder Award for value.
Youi Building and Contents Insurance
Our verdict: Finder’s 2022 Insurer of the Year for Customer Satisfaction and our Top Pick for Fire Damage cover. It’s good if you want a tailored quote over the phone.
QBE Home & Contents Insurance
Our verdict: Finder's Top Pick for Floods plus cover for other common claims such as fire and theft). Its discount is better than most – 20% off your first year with a combined policy.
Honey Home & Contents Insurance
Our verdict: Honey gives you $250 smart sensors to reduce accidents and estimates your rebuild costs for you. Honey was a finalist for the comprehensive category in this year’s Finder Awards.
Australia Post Home & Contents Insurance
Our verdict: Covers common claims such as fire, storms, floods and rain. It’s also very helpful if you need to rebuild following a disaster. It offers a special safeguard of up to 30%.
Kogan Home & Contents Insurance
Our verdict: Good comprehensive cover (issued by QBE). Also, get 16% off on your first year's premium when you purchase a new combined Home & Contents insurance policy online + $10 monthly credit. T&Cs apply.
Qantas Home and Contents Insurance
BonusFinder Award Finalist
Qantas Home and Contents Insurance
Our verdict: Earn up to 30,000 Qantas Points with every Qantas Home Insurance policy you take out by 28 May. T&Cs and exclusions apply.

Why you can trust Finder's home insurance experts


We're free

You pay the same as buying directly from the home insurer. Better still, we regularly run exclusive deals that you won't find on any other site – plus, our tables make it easy to compare policies.
expert advice

We're experts

We've researched and rated dozens of policies as part of our Finder Awards. We provide unique insights and our in-house experts regularly appear on Sunrise, 7News and SBS News.

We're independent

Unlike other comparison sites, we're not owned by an insurer. That means our opinions are our own and we work with lots of home insurance brands, making it easier for you to find a good deal.

We're here to help

Since 2014, we've helped 150,000+ people find home insurance by explaining your cover options simply and clearly. We'll never ask for your number or email. We're here to help you make a decision.

More guides on Finder

Ask a Question

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our 1. Terms Of Service and 6. Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site