A third of home and/or contents policyholders could be underinsured, according to alarming new research from Compare the Market. The study found that almost a third of policyholders for home and/or contents insurance have guessed their sum insured value.

Guessing the sum insured for any policy can be a risky game, given that ASIC data has previously revealed that up to 80% of homeowners are underinsured, meaning that if anything were to happen, insurers would not be able to completely rebuild, repair or replace homes or contents to the exact value.

Compare the Market’s Executive General Manager for General Insurance and home and contents insurance expert, Adrian Taylor, said that guessing your sum insured is a dangerous game.

“People may think that they have a good feel on what the value of their homes or contents might be, but the fact is, people either will under or overvalue what they have,” Mr Taylor said. “And this can cause issues either way.

“If people are undervaluing their home or contents when they take out or renew their insurance, it means that they won’t be adequately covered if something were to go wrong. Whether that’s theft, fire, flood or something in between, if you only insured your contents for $25,000, while the damage was estimated around $50,000 by an evaluator, the insurer will not pay that extra $25,000, and that will be on you to foot the bill.

“On the other hand, for home insurance, people may underestimate the rebuild costs, given the skyrocketing cost of building materials and labour since the start of the pandemic. Back in 2018, you may have been able to rebuild a house for $300,000, but in the current economic climate, that house might now cost around $500,000 to rebuild. If people haven’t updated the sum insured on their policy to recognise these rising costs, then they might be left out in the cold if it comes time to claim.”

But underinsurance is not the only danger with guessing an amount to insure, according to Mr Taylor.

“While underinsuring your home or your contents means that you won’t be able to get everything back the way they were prior to a claim, over insurance will hurt your hip pocket,” Mr Taylor said.

“Your premium will likely be higher than it needs to be if you overestimated the sum insured for your property or belongings, and you won’t be able to make use of your high limit.

“In the case of contents, this might mean that your grandmother’s gold ring that you valued at $5,000  for personal reasons may only have a market value of $1,000, and that’s the payout you’ll receive from your insurer.

“We’ve also heard from people who have counted their land value in their home sum insured, which greatly boosted their premiums.

“This is why we believe in right-sizing your insurance. Every year, when your renewal comes around, most insurers will slightly increase the sum insured by a small amount to keep up with inflating prices, but sometimes that just won’t cover the full cost.

“This is why we urge people to use a building or contents calculator at least every year when their renewal comes around.

“It could mean the difference being able to repair or replace everything or not when the worst comes to pass.”

*Compare the Market surveyed 1,006 Australian adults aged 18 and over in June 2024.

-ENDS-

For interviews and more information, please contact:

Noémi Hadnagy | m: 0433 377 252 | e: [email protected]    

Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.