What happens if your home is underinsured?

Collage of people sitting in an underinsured house.

If your home is underinsured, it means the value of your insurance policy doesn’t cover the costs it would take to replace it. In essence: your coverage isn’t enough.

This can leave you vulnerable to bigger bills and higher costs when the worst happens, such as flooding or bushfires.

According to Mozo banking expert Peter Marshall, underinsurance can deliver a massive blow to homeowners’ wallets when they need help the most. This is especially crucial to consider nowadays, as more and more people compromise on coverage to keep premiums down. 

“Underinsurance is dangerous because many homeowners probably don’t even know that they are underinsured, then when it comes time to make a claim, they find themselves out of pocket,” says Marshall.

“Owning a property is a huge investment, not to mention everything that comes with it, like appliances, furnishings and all your belongings. Leaving it unprotected or only partially protected is a big financial risk.”

Unless your policy has underinsurance protection or total replacement cover, you’ll have to make the difference with your money.

How to avoid underinsurance and work out how much home insurance you need

You can take a few strategies to ensure your home & contents insurance adequately protects your property.

  • Get a property valuation. Unless you’ve kept diligent receipts, it can be challenging to pinpoint the cost of replacing your home and everything inside. Get a professional property valuation to estimate how much cover you may need. Some home insurance policies also use smart technologies like AI to calculate the value of your home, such as Honey Insurance, which can make avoiding underinsurance simpler. 
  • Compare home insurance policies. Most Australians don’t take the time to research and compare home insurance policies. It’s easier to switch than you think! Make sure to read the product disclosure statement (PDS) and send for a quote so you can get an idea of what value is on offer.
  • Opt for underinsurance protection. If the value of your home is liable to change during your coverage, you may want to opt for a policy with underinsurance protection. This clause acts as a safety net and insures your home for up to 30% more than the agreed-upon value in case you find yourself short of the rebuild costs. 
  • Go for value, not price. Insurance that doesn't adequately cover your property and belongings isn't worth the money, no matter how cheap (or expensive) the premium is. Instead, balance your coverage needs with your budget, instead of letting your budget have the last word. 

Concerned about your insurance? Compare policies in the table below, or check out award-winners at our best home insurance hub. If you’re worried about staying within budget, we’ve also rounded up tips and insights for all things cheap home insurance.

Compare home insurance policies

Mozo may receive payment if you click to the website of one of the products below. Mozo does not compare the entire market, but you can see more products by clicking on the ‘See more’ button under the table.
Last updated 14 July 2024Advertiser disclosure
Important information on terms, conditions and sub-limits.
  • Home & Contents Insurance

    Main events covered
    • fire
      Fire
    • theft
      Theft
    • storm
      Storm
    • flood
      Flood
    Monthly payments
    cost extra
    Calendar icon
    Yes
    Underinsurance protection
    Underinsurance protection icon
    No
    New for old
    replacement
    Replacement icon
    Yes
  • Home Cover - Buildings & Contents

    Main events covered
    • fire
      Fire
    • theft
      Theft
    • storm
      Storm
    • flood
      Flood
    Monthly payments
    cost extra
    Calendar icon
    Yes
    Underinsurance protection
    Underinsurance protection icon
    Optional ExtraUp To 30% Of Buildings Sum Insured, Applied Automatically For Eligible Policies
    New for old
    replacement
    Replacement icon
    Yes
    Details
  • Home & Contents Insurance

    Main events covered
    • fire
      Fire
    • theft
      Theft
    • storm
      Storm
    • flood
      Flood
    Monthly payments
    cost extra
    Calendar icon
    No
    Underinsurance protection
    Underinsurance protection icon
    No
    New for old
    replacement
    Replacement icon
    Yes
    Details
  • Home & Contents Insurance

    Main events covered
    • fire
      Fire
    • theft
      Theft
    • storm
      Storm
    • flood
      Flood
      Optional Extra
    Monthly payments
    cost extra
    Calendar icon
    Yes
    Underinsurance protection
    Underinsurance protection icon
    Optional ExtraUp To 25% Of Building Sum Insured
    New for old
    replacement
    Replacement icon
    Yes
    Details
  • Home & Contents Insurance

    Main events covered
    • fire
      Fire
    • theft
      Theft
    • storm
      Storm
    • flood
      Flood
    Monthly payments
    cost extra
    Calendar icon
    Yes
    Underinsurance protection
    Underinsurance protection icon
    Optional ExtraUp To 30% Of Building Sum Insured
    New for old
    replacement
    Replacement icon
    Yes
    Details

* Terms, conditions, exclusions, limits and sub-limits may apply to any of the insurance products shown on the Mozo website. These terms, conditions, exclusions, limits and sub-limits could affect the level of benefits and cover available under any of the insurance products shown on the Mozo website. Please refer to the relevant Product Disclosure Statement and the Target Market Determination on the provider's website for further information before making any decisions about an insurance product.

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