Most Australians who take out home insurance assume they’re covered for the full cost of rebuilding their home and replacing everything inside it. The research suggests otherwise. According to the Insurance Council of Australia, up to 83% of Australian homes are underinsured by an average of 40%. For a home that would cost $600,000 to rebuild, that means a $240,000 gap between what you think you have and what you’d actually receive.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Those averages tell a story, but they don’t tell yours. The average building sum insured sits at $450,000, yet a typical rebuild in many areas runs higher once demolition, debris removal, architect fees, and council approvals are added in. The numbers that matter are the ones on your policy. And the gap between what people insure and what they’d actually need keeps showing up in the claim statistics — storm damage alone accounted for 47% of home insurance claims in 2025–26, totalling $4.8 billion, according to industry data. If your sum insured doesn’t match the real rebuild cost, you’re carrying that risk yourself.
Here’s what you actually need to know.
The difference between building and contents cover — and why it matters at claim time
Insurance policies in Australia split cover into two distinct parts, even when sold as a combined product. Building insurance covers the physical structure and permanent fixtures. Contents insurance covers the belongings you’d take with you if you moved. The distinction matters because each part has its own sum insured, its own exclusions, and its own rules for setting the right level of cover.
Get the sum insured wrong on the building side and you could be hundreds of thousands short if the worst happens. Get it wrong on the contents side and you might find your electronics, wardrobe, and furniture replaced at a fraction of what you actually own. What I tend to notice is that most people set these numbers once at policy inception and never revisit them — yet construction costs and the value of what you own both change over time.
Rebuild cost vs market value — the gap that catches most homeowners out
The most common mistake in home insurance is using the property’s market value or purchase price to set the building sum insured. Market value includes land. Rebuild cost does not. In areas where land is expensive, the rebuild cost can be much lower than the purchase price. In areas where construction costs are high relative to land value, it can be the reverse. According to ASIC research, up to 80% of Australian homes are underinsured — meaning four in five homeowners would not receive enough to fully rebuild if their property was destroyed.
The building sum insured needs to cover demolition, debris removal, site clearing, architect and engineering fees, council approval costs, and reconstruction using equivalent materials and quality. A professional rebuild cost assessment is the only reliable way to get this number right. The Insurance Council of Australia’s rebuild cost calculator is a useful starting point, but for a full replacement policy — which pays the complete cost regardless of the sum insured — check the policy wording carefully, because definitions vary between insurers.
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| Aspect | Building Insurance | Contents Insurance |
|---|---|---|
| What it covers | Walls, roof, floors, ceilings, fixed fixtures, kitchen cupboards, bathroom vanities, built-in wardrobes, permanently installed ovens and dishwashers, fences, garages, sheds, retaining walls, driveways, pools | Furniture, electronics, televisions, computers, clothing, jewellery, artwork, sporting equipment, tools, musical instruments, kitchen appliances, bedding |
| Who needs it | Homeowners — often required by mortgage lenders as a condition of loan approval | Homeowners and renters — renters do not need building cover |
| Sum insured basis | Full rebuild cost at current construction prices, including demolition, debris removal, architect fees, engineer fees, council approvals | Replacement cost at current retail prices for every item owned |
| Typical value range | $300,000 – $800,000+ depending on home size, materials, and location | $50,000 – $150,000 for a furnished family home |
| Sub-limits for valuables | Not applicable | Jewellery $1,000–$3,000 per item; electronics $2,000–$5,000 per item — items above these limits must be listed separately |
| Key common exclusion | Gradual deterioration, wear and tear, lack of maintenance, vermin damage, mould, structural defects | Same exclusions, plus sub-limit caps on single items and portable contents used outside the home |
Where contents cover falls short — sub-limits, portable items, and the underestimation problem
Contents insurance is the part of the policy people tend to rush through. Walk through your home room by room and add up what it would cost to replace every item at today’s retail prices. A typical three-bedroom home can easily hold $80,000 to $150,000 worth of contents once furniture, electronics, clothing, kitchen goods, bedding, sporting equipment, and tools are all counted. Most people significantly underestimate this total, according to industry research.
Standard policies also cap how much they’ll pay for individual items. Jewellery is typically limited to $1,000–$3,000 per item. Electronics are capped at $2,000–$5,000. If you own anything above those limits — an engagement ring, a watch, a camera setup, a high-end laptop — you need to list it as a scheduled item on the policy to get full cover. Portable valuables used outside the home, like jewellery worn daily or a laptop taken to work, may need additional individual coverage as well.
The 83% underinsurance figure applies to both building and contents, but the contents side has an extra layer of risk. Even if you set a reasonable total sum insured, the sub-limits on individual items mean you could be out of pocket for your most valuable possessions unless you schedule them. A video doorbell camera with motion detection and night vision can serve as a deterrent against theft, but it won’t increase your policy’s jewellery or electronics sub-limit — that requires a separate conversation with your insurer.
How to set your sums insured correctly — and keep them right
Getting the building number right
A rebuild cost assessment accounts for the cost of materials, labour, demolition, site clearing, architect and engineering fees, council approvals, and building code compliance. The result is often higher than the structure’s market value in areas where construction costs are elevated. Use the Insurance Council of Australia’s online calculator or request a professional assessment from a quantity surveyor. If your policy includes a safety net — some insurers offer 25% over the declared sum insured — check whether it’s automatic or optional.
Getting the contents number right
Walk through your home room by room with a notepad or spreadsheet. List every item and its replacement cost at current retail prices — not what you paid for it, not what it’s worth second-hand. Include everything in cupboards, drawers, and storage spaces. The total for a furnished family home typically falls between $50,000 and $150,000. Review the list annually after major purchases, renovations, or during periods of high inflation in construction and retail prices.
Combined policies — the discount and the risk
Bundling building and contents cover into a single policy typically saves 5–15% compared to two standalone policies. It also means one renewal date and one premium to manage. The catch is that both sums insured need to be adequate. If one is wrong, you don’t get a discount on the claim — you get a shortfall. Compare quotes annually; average savings from switching are around 30%.
- Get a professional rebuild cost assessment for the building sum insured
- Walk through every room and list all contents at replacement cost
- Check policy sub-limits for jewellery, electronics, and other valuables
- List items above sub-limits as scheduled items with individual values
- Review sum insured amounts annually or after major purchases or renovations
- Confirm whether flood cover is included or requires a separate add-on
Frequently asked questions about building and contents cover
What happens if I leave my home unoccupied for a long period? ▾
Is flood cover included in standard policies? ▾
What is a co-insurance clause and how does it affect my payout? ▾
Do I need contents insurance if I’m renting? ▾
What counts as a high-value item that needs separate listing? ▾
What an underinsurance gap actually costs a real homeowner
Take the scenario that surfaces again and again in the data. A home with a true rebuild cost of $600,000 is insured for $400,000 — roughly the average building sum insured. A total loss from a storm or fire triggers a claim. With a co-insurance clause, the payout is capped at two-thirds of the loss, leaving a $200,000 gap that the homeowner must cover from savings or a new loan. That’s not a hypothetical. That’s the reality for the 83% of Australian homes sitting on sums insured that don’t match current rebuild costs. The figure that should stick with you is not the average — it’s the gap between what you’ve declared and what it would actually cost to start over.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Understanding Property Insurance for Community Built Housing.
Sources and Further Reading
Building Insurance vs Content Insurance: What Every Aussie Homeowner Needs — A practical comparison of what building and contents cover actually include, with examples of common claim scenarios.
Your Finance Guide (2025). Home Insurance in Australia: Building vs Contents vs Combined Cover. 🔗
Roopon (2024). Home and Contents Insurance Australia: Building vs Contents Cover. 🔗
National Insurance Guide (2026). Home and Contents Insurance in Australia: 2026 Market Data and Coverage Guide. 🔗
SBS Australia (2024). Home and Contents Insurance in Australia: How It Works. 🔗
