Understanding Underinsurance and How to Avoid It
More than 80% of Australian homes are underinsured. Here's how to calculate your real replacement cost.
Underinsurance is one of the most common — and costly — insurance mistakes in Australia. ASIC estimates that around 80% of Australian homes are underinsured, often by 30–40%. After a total loss like a bushfire or flood, this gap is catastrophic.
Why underinsurance happens
- •People use market value (what you'd sell for) rather than replacement cost (what it costs to rebuild)
- •Building costs have risen faster than insured values — especially since 2020
- •People forget to update their cover after renovations or extensions
- •Contents are insured at original purchase price, not replacement price
How to calculate your correct building sum insured
Use the Cordell Sum Sure calculator (available through most insurer websites) to estimate your home's rebuild cost based on size, materials, and location. This is rebuild cost — materials + labour — not real estate value.
Critical point
If your policy has an underinsurance clause, claiming $80,000 when your home is only insured for 60% of its rebuild value means the insurer may only pay 60% of your claim — leaving you $32,000 short. Check your policy for 'co-insurance' or 'averaging' clauses.
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