How and why to avoid underinsurance
What is underinsurance?
Underinsurance is when your sum insured is lower than the value of what’s being insured. That is, the amount you’ll be paid for a claim covered by your policy won’t be enough to cover all repair or replacement costs.
People can become underinsured in a few ways.
- By not updating their cover as the value of their home or contents increases.
- By not valuing their home or contents correctly when they take out or update their policy.
- By intentionally lowering their sum insured to save money on their premium, leaving them at-risk should they be impacted by an event.
If you’re after ways to save on home insurance without risking underinsurance, there are a few things you can do.
Tips on how to avoid underinsurance
Correctly determine the value of your assets
It can be difficult to actually quantify the value of your home and contents – especially for things you may have had for years, and for which the receipts are long gone. Their value may have gone up or down, which makes it that much harder to keep on top of things.
Luckily, you can use AAMI’s home building or contents calculators to get a general idea of how much your home or contents may cost to replace, which can inform your sum insured.
You may also want to start a home inventory list that contains the current value of everything in your home, from your carpets to your collectibles. For things whose value may be different from when they were first bought, like a collectible or an antique, it can be worth getting a certificate of valuation as solid proof of its worth, alongside receipts for standard items.
Some categories of contents have flexible limits where you can choose to increase their limit for an extra premium to ensure they’re covered up to their full value at home. If you’d like cover at and away from home, you may want to add Portable Valuables optional cover for an extra premium, which covers valuable personal belongings anywhere in Australia and New Zealand. There are two types of cover to choose from, so read the Product Disclosure Statement for more info.
Explore Portable Valuables Cover
Regularly review your sum insured
Don’t just set and forget your sum insured! The value of your home and its contents will probably change over time, so it can be useful to regularly check in to make sure you’re adequately covered.
It may even be worth having a professional evaluation from a builder, as they may consider other elements that you may not have considered yourself. This can be things like:
- rebuilding costs
- surveying, or
- even the cost of debris removal.
These examples are all included in AAMI Home and Contents Insurance combined cover as a percentage of the total sum insured – even debris removal! If loss or damage to the building and/or contents is covered by your policy, we’ll cover the reasonable and necessary costs to remove debris that has damaged the building (up to 15% of the building sum insured), and to dispose of any subsequently damaged contents (up to 10% of the contents sum insured). If you have Complete Replacement Cover, we’ll pay the reasonable and necessary costs.
If you have Complete Replacement Cover, this level of cover can give you peace of mind that we'll repair or rebuild your home as it was — or pay you the amount of the assessed quote to do so — without you having to set a specific sum-insured limit. Be sure to read the relevant PDS for more info.
Update your policy details when changes happen
If you’ve recently renovated or finally splurged on that full home cinema experience, you’ll definitely be adding value to your home and its contents. Just be sure to check that it’s reflected in your policy details and sum insured.
What are the consequences of underinsurance?
The most obvious risk is that you won’t have enough cover to repair or replace your home or contents if a claim needs to be made for an insured event. While smaller claims that are isolated to a small portion of your house or only for a few select items may be covered by a low sum insured, a larger incident – like a fire, storm*, or theft – may cause significant financial loss.
Ensure you have the right level of cover
Having the right level of insurance cover helps you recover your financial losses after an unexpected event. From helping to protect your home against flood and other natural disasters to helping cover your valuables, AAMI offers a range of insurance options for you to consider whether you’re renting or in your own home.
Read the PDS for details on everything that’s covered, and everything that’s not.
Read more:
- Does home insurance cover my mobile phone?
- Home to prepare your home for natural disasters
- How to make a home insurance claim
*We do not insure you for bushfire, storm, storm surge, flood or tsunami in the first 72 hours of your policy. Very limited exceptions apply. Actions or movements of the sea and storm surge are not covered (unless the storm surge damage occurs at the same time as damage caused by storm).
Insurance is issued by AAI Limited ABN 48 005 297 807 AFSL 230859 trading as AAMI. Any advice has been prepared without taking into account your particular objectives, financial situation or needs, so you should consider whether it is appropriate for you before acting on it. Please read the relevant Product Disclosure Statement before you make any decision regarding this product. The Target Market Determination is also available. This information applies to new policies or renewal policies starting on or after 24 January 2025.