Many Australian homeowners only discover they are underinsured after a disaster, when the claim payout falls short of what it actually costs to rebuild. Getting your home rebuild cost right is one of the most important decisions you make when arranging home insurance. Here is how to approach it.
What Does Underinsurance Mean?
You are underinsured when your sum insured is lower than the real cost of repairing or rebuilding your home. If your home is destroyed and your policy limit is $600,000 but rebuilding costs $800,000, you may need to cover the $200,000 difference yourself. For most families, that gap would be devastating.
Market Value Is Not Rebuild Cost
A common mistake is basing your sum insured on what your property would sell for. Market value includes the land, which does not burn down or need replacing. On the other hand, rebuild cost can sometimes be higher than market value, especially for older homes, character properties or homes with high-quality finishes. The two numbers measure completely different things.
Costs People Often Forget
When estimating rebuild cost, think beyond bricks and timber. A full rebuild can involve:
- Demolition and debris removal, including safe removal of hazardous materials such as asbestos
- Professional fees for architects, engineers, surveyors and building certifiers
- Council fees and permits
- Compliance with current building codes, such as bushfire attack level (BAL) ratings and energy efficiency standards, which may be stricter than when your home was built
- Site access and slope, as sloping or hard-to-reach blocks cost more to build on
- Outbuildings, fences, driveways, decks and pools
- Price increases for materials and labour between the date of loss and the end of the rebuild
How to Estimate Your Rebuild Cost
There are a few practical ways to arrive at a realistic figure:
- Online rebuild calculators: Many insurers and industry bodies provide calculators that consider size, construction type, number of storeys and location.
- Quantity surveyor or builder estimate: For larger, older or architecturally designed homes, a professional estimate gives the most accurate number.
- Original build documents: Plans and specifications help ensure details like ceiling height, roof type and finishes are captured.
Once you have a figure, it is wise to add a buffer for unexpected costs and future price rises.
Don’t Forget Your Contents
Underinsurance applies to contents too. People routinely underestimate the cost of replacing everything they own. Add up furniture, appliances, clothing, kitchenware, electronics, tools, sporting goods and valuables, then compare it with your current contents sum insured. Many find the real figure is far higher than they expected.
Review Your Cover Regularly
Your rebuild cost is not a set-and-forget number. It should be reviewed:
- At every renewal
- After renovations, extensions or adding a pool, deck or shed
- When building costs rise in your area
- After major purchases for your contents
How Gidda Insurance Brokers Can Help
At Gidda Insurance Brokers, we help clients think through the full picture, from demolition costs to compliance requirements, so your sum insured reflects reality. We also explain features such as safety net cover and inflation protection, and compare how different insurers handle them.
Not sure whether your home is properly covered? Learn more about our home insurance services or book a cover review with our Melbourne team on 0491 999 555.
This article contains general information only and does not take into account your objectives, financial situation or needs. Before making a decision, consider whether the cover is appropriate for you and read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD). Gidda Insurance Brokers Pty Ltd is an Authorised Representative (No. 001307383) of Regis Licensing Pty Ltd ABN 71 130 820 727, AFSL 338156.
