What is underinsurance?

You’re underinsured if the total amount insured for your home or contents is less than what it would cost to rebuild structures and replace your belongings.

This is a very real threat to your ability to recover after a fire, theft or other personal disaster.

Underinsurance occurs for a number of reasons. We’re sharing them here so you can ensure you don’t fall victim to the underinsurance trap.

The top 5 reasons you could be underinsured

• You’ve renewed your policy, but haven’t reviewed the details of how your situation has changed over the past year.
• You’ve renovated or added features to your home.
• You’ve purchased large items, such as electronics or furniture.
• You’ve undervalued your home or contents.
• You’ve not fully considered the costs of rebuilding, demolition or removal of debris in your total sum.

How much cover is right?

We frequently see people who are surprised by the total value of their home and contents.

To calculate their worth accurately, list all the rooms in your house and then calculate the value of what each room holds.

Your bedroom, for example, might hold a value of $41,800, including jewellery, bed, linen, electronic devices and furniture. And your children’s room might hold a value of $14,900 in clothing, toys, furniture and electronic games.

Try our insurance calculators.

How to calculate the costs of rebuilding

Many factors affect the cost of rebuilding. It can be useful to engage a local home builder to obtain an estimated rebuild cost based on the size of the property you’d need to replace.

Remember that the quality of your finishes; style of your home, including ceiling height; and the choice of cheap or expensive materials (such as hardwoods) all affect the price of the rebuild.

Extras such as air conditioning, pools, driveways and decking are all additional costs.

Changes to building regulations in your area may also affect building costs. For example, new standards to protect against bushfire may carry hidden costs.

The slope of your land also affects building costs, as does the way your home is elevated (if it is built on columns or posts, for example). If your home is built on a slope, expect to add an average of 5% to 30% to rebuilding costs.

Check the limitations of your policy

Every policy type has different cover levels, so take the time to select the best option for your needs.

Our top level of cover protects your building and contents against almost any type of accidental loss or damage. We also have a full range of high-value mid-range policies and low-level cover for the budget conscious.

Don’t fall into the trap of paying less to save money now at the expense of being caught short in the future.

When it comes to home and contents insurance, being adequately insured is vital to your continuing to enjoy the same quality of life after an unforeseen event.

Remember, it’s always wise to read your Product Disclosure Statements thoroughly so you fully understand what's covered and what's not.