How much should I insure my house for?

How much to insure a house for, plus tips to avoid underinsurance

Many people assume that having home insurance means they’re fully protected, but that’s not always the case. You could be underinsured without even realising it. What does that mean? Simply put, it means your insured amount may not be enough to rebuild or replace your home and belongings if disaster strikes. Your home is one of your biggest investments, and if your coverage falls short, you could be left paying the difference yourself. Having your home insured for the correct amount can mean the difference between financial security or financial setback.

To help you determine whether your home is insured for an appropriate amount, we’ve gathered information and tips in this resource for you to consider. Keep reading to see whether your current insurance is adequate for your situation.

In this article, you will learn:

• Key takeaways
• How to determine the right sum insured for your home
• The risks of underinsurance
• Key steps to ensure your home and belongings are properly insured
• Practical tips for choosing the right cover amount
• Why underinsurance is a growing concern in Australia

Key takeaways

• The sum insured should reflect the cost to rebuild your home, not its market value.
• Underinsurance is common in Australia and can leave many homeowners financially vulnerable.
• Estimating rebuild and replacement costs accurately helps ensure adequate coverage.
• Using home insurance calculators and professional valuations can improve accuracy.
• Regularly reviewing and updating your sum insured amount is essential, especially as building costs rise.
• Tenants should also consider contents insurance to protect their belongings.

How much should I insure my home for? Determining ‘sum insured’

The sum insured is the maximum amount your insurer will pay (less any applicable excess) to rebuild your home if it’s damaged or destroyed. This is the figure that you will agree to when you take out a home building insurance policy.

Keep in mind that sum insured is different from the market value of your home since the market value includes land value and real estate demand factors. The sum insured is only related to rebuilding costs.

When choosing a sum insured amount, make sure that the amount reflects:

• The rebuild cost of your home, including materials and labour
• Additional features like swimming pools, garages and sheds

Because construction costs can change over time, you should review your sum insured each year at renewal. Keeping it up to date helps ensure you have enough cover to rebuild if the unexpected happens.

If you don’t know how to calculate these figures yourself, don’t worry, the following section shows you how to estimate these numbers.

How to avoid underinsurance for your home and belongings

As mentioned before, being underinsured can create serious financial stress if your policy doesn’t cover the full cost of rebuilding after a disaster like a fire, flood, or storm. Many homeowners underestimate how much it actually takes to rebuild.

The following methods for estimating your sum insured will help you reach a more accurate figure.

How to estimate your rebuild cost:

• Use online home insurance calculators like the one provided by RACQ.
• Get a professional rebuild valuation for your house. This may be an options for high value homes. A qualified building surveyor or quantity surveyor can offer a tailored estimate based on your property’s unique features.

How to estimate replacement value for your personal belongings

• Use a home contents calculator like the one provided by RACQ.

• Take a home inventory, including receipts and photographs and update your list regularly, especially after making big purchases. This should include:
  • Large essentials: fridge, beds, couches, washing machines
  • Electronics: TVs, laptops, gaming consoles
  • Valuables: jewellery, artwork, designer handbags

5 key steps to ensure your home insurance covers what you need

Here are five key steps to help you avoid underinsurance and ensure your home and belongings are adequately covered.

1. Review your sum insured amount every year

Building costs can increase, and any renovations or upgrades may change the value of your home. Reviewing your insurance annually helps ensure your coverage keeps up with these changes.

2. Choose the right policy and add-ons for your needs

Not all policies offer the same level of coverage. Compare home insurance policy options and consider whether you need cover for things like:

• Accidental damage
• Mobile phones
• Specified items you want to list individually

3. Keep an inventory list and review replacement values annually

While your insurance may not require this, keeping a home inventory can help you estimate a suitable sum insured and make the claims process easier. If you do have specified items on your policy, you’ll need to revalue them each year at renewal to keep your cover up to date.

4. Renters should consider contents insurance too

Even if you don’t own your home, contents insurance can protect your valuables from theft, loss, or accidental damage.

5. Always read the PDS to understand your coverage

Your Product Disclosure Statement (PDS) outlines what is and isn’t covered. Reviewing it carefully can help you avoid surprises when you need to make a claim.

Is underinsurance a problem in Australia?

Yes, underinsurance is a widespread issue in Australia. Many homeowners are unknowingly underinsured, which can leave them financially exposed. Studies show that:

• A significant portion of Australians are cutting back on insurance due to rising living costs, leaving them unprotected during extreme weather events.
• Climate change is increasing risks, with bushfires, floods, and cyclones causing more property damage than ever before.
• Building costs have risen, making previous sum insured amounts insufficient for full rebuilds today.

Taking the time to calculate an accurate sum insured amount can prevent serious financial strain if disaster strikes.

Protect what matters the most

Having the right home insurance cover amount can make all the difference if disaster strikes. By reviewing your sum insured regularly, understanding your policy options, and ensuring your coverage reflects the true value of your home and belongings, you can protect yourself from financial hardship.

Take the time to assess your coverage today and make sure you have the protection you need. If you're unsure, use one of our online calculators or speak with RACQ to get the right level of cover for your home.