Australian homes up to 66% underinsured, new research finds

If you’re an Australian homeowner, it’s likely that your home and contents insurance policy is offering a lot less protection than you think. 

New research from MCG Quantity Surveyors has found large numbers of Australian homes could be under-insured by up to 66% - or as much as $443,399.

And according to director of MCG Quantity Surveyors, Marty Sadlier, that’s largely because the online calculators we use to get our insurance estimates aren’t accurate at all. 

“Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings,” he said. 

With bushfire and flood season almost upon us, Sadlier added that “this epidemic of underinsurance could prove totally shattering” and cost homeowners hundreds of thousands of dollars out of their own pockets. 

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Taking a closer look at MCG Quantity’s data crunch, the research found that total insurance value for a new home in Airds, NSW amounted to $669,559. This involves the construction cost, plus demolition, removal of site debris, allowances for cost escalations and consultant’s fees. 

But when the same information was put through five web-based calculators as recommended by insurance companies, vastly different values were generated. 

“The lowest value calculator assessed the insurance value at $226,160 - or 66% below the needed amount, while the highest web based estimate was $535,000 which is still 20% underinsured,” Sadlier said. 

In other words, the calculators’ predictions of how much it would cost you to rebuild your home were considerably lower than the ‘true’ value of the home. 

“Not only do these calculators tend to underestimate construction costs overall, most don’t include amounts for demolition, debris removal, cost escalations and consultant’s fees,” Sadlier added. 

“Given the extreme results we’ve observed, any homeowner relying on online calculators could be in dire financial straits after a major insurance event.” 

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How to protect yourself from underinsurance 

So what if a natural disaster damages or destroys your home? Luckily, there are ways to make sure you won’t be left high and dry when faced with hefty repair bills: 

• Take out a policy with underinsurance cover: Think of underinsurance cover as a safety net that covers you for up to 30% more than the agreed value of rebuilding your home. This allows you to potentially claim a greater amount than what you’ve been insured for. 
• Consider a total replacement policy: This policy lowers the risk of underinsurance, as it covers the entire cost of rebuilding or repairing your home to the standard it was before the disaster. But keep in mind that if you opt for total replacement cover, you’ll usually have to pay higher premiums. 
• Check the location of your home: While most home insurance policies come with cover for natural disasters, it’s a good idea to take out additional cover if your home is located in bushfire, flood or cyclone zones - just for extra peace of mind that your property and belongings are protected, should a natural disaster strike. Also read the Product Disclosure Statement (PDS) so you know to what extent your policy would cover those events - in particular, watch out for exclusions, cap or limits. 
• Update your policy regularly: Many factors could increase the value of your property, whether it’s renovations or your suburb growing more popular over time. That’s why reviewing and updating your policy regularly is so important, as your home right now may no longer be adequately covered by the insurance you took out a few years ago. 

On the hunt for home insurance that provides the right cover for you at affordable prices? To get started today, check out the winners of the Mozo Experts Choice Home Insurance Awards, or jump over to our home insurance comparison table to compare more options.