Australians are dicing with financial ruin by taking a “risky” approach to insuring their homes, experts say.
Research has found many of Australia’s more than 6.2 million homeowners are failing to fully protect their properties and possessions in the event of disaster, with some not covered by insurance at all.
Families juggling cost-of-living pressures say they are struggling to find room in their budgets to accommodate premiums that are being driven up by extreme weather and other factors.
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“We are seeing an epidemic of under-insurance across Australia,” MCG Quantity Surveyors director and property insurance expert Marty Sadlier told 7NEWS.com.au.
“Many homeowners simply don’t know what it would actually cost to rebuild their property today.
“Demolition, compliance with new building codes, professional fees — all of that adds up.
“Without a proper replacement cost assessment, people are effectively guessing, and guessing is risky when your home is your biggest asset.”
What is underinsurance and what are the risks?
Put simply, under-insurance occurs when you do not have the financial safety net to fully cover the replacement value of the items you are insuring.
“Under-insurance is unfortunately common … making it difficult for those Australians who are under-insured to resume their standard of living — whether it’s rebuilding their home or replacing belongings to the same standard — if their property is badly damaged or destroyed,” The Insurance Council of Australia (ICA) said.
Without the right protection, owners face having to stump up huge amounts to cover any shortfalls.
“Depending on your situation, the severity of the damage, the kind of cover you do have, and the home you want to rebuild, that could be tens of thousands or even hundreds of thousands of dollars,” Compare The Market spokesperson Chris Ford told 7NEWS.com.au.
How many Australians are underinsured?
Polling by the Australia Institute in 2025 found about 1.4 million homes were either uninsured or under-insured.
Sadlier’s firm believes the rapid rise of construction costs and inflation could mean under-insurance is close to 90 per cent of Australia’s 11.4 million residential dwellings.
“The average cost to build a house has increased some 29 per cent to 30 per cent since 2019,” he said.
“Therefore, many Australians who thought their property insurance was ‘about right’, say, two years ago are well and truly now out of touch.”
Why are Australians not properly insured?
Rising premiums are a concern for households facing “extreme home insurance affordability pressure”, with many considering dropping their cover altogether.
“Australian families are facing an almost impossible choice when it comes to home and contents insurance,” Australia Institute senior economist Matt Grudnoff said.
“They either find the money to pay ridiculous premiums or risk losing everything they own.”
A recent Compare The Market survey found 52 per cent of people had noticed their home insurance premium rise over the past year, but Ford said: “We think the true number of bill increase could be higher, with so many people auto-renewing or just setting and forgetting.”
Beyond the bill shock, the ICA said most people find themselves under-insured because they have not properly calculated the replacement value of their property and belongings.
Adding to that point, Sadlier pointed to supplementary costs including the price of demolition, surveyor services and temporary accommodation that can easily be overlooked.
“Under-insurance isn’t always a deliberate cost-saving choice — more often, it stems from poor understanding of actual rebuild costs and how insurance works,” he said.
How much are Australians paying for home and contents insurance?
Australians were asked to stump up 14 per cent more for home and contents premiums last year, analysis by Canstar found, with the average household paying $2795 in 2025.
Residents in North Queensland and the Northern Territory were asked to pay the most, with the average policy more than $4600.
Compare The Market’s own research found quotes could vary heavily based on insurer.
“There was a $2853.78 gap between quotes for the same property in Sydney’s Sans Souci,” Ford said.
“In the case of one home in Brisbane’s bayside suburb of Wynnum there was a $1490.88 difference between the cheapest and dearest quotes — proof it can pay to shop around.”
Why are premiums on the rise?
Natural disasters across the country have exposed households that are inadequately covered and prompted insurance companies to “increase premiums exponentially”, the Australia Institute said.
Data from ICA shows extreme weather cost almost $3.5 billion in insured losses in 2025 — a year when five significant or catastrophic weather events were declared.
“In comparison, insured losses from extreme weather events in 2024 totalled $581 million and from 2023 totalled $2.35 billion, demonstrating the unpredictable nature of extreme weather year on year,” the council said.
“The first few weeks of 2026 has also seen significant extreme weather activity, from bushfires in Victoria to monsoonal weather in North Queensland.”
The high cost of rebuilding and reinsurance have also been “major drivers” of premium pressure.
“Administration and staffing costs affecting most industries are also taking their toll,” according to Canstar.
“However, the extent of any increase over the past 12 months depends on each customer’s circumstances and chosen insurer.
“Existing customers may experience different premium changes than new customers.”
Tips for properly insuring your property and possessions
Experts say that if disaster does strike you need to know that your insurance will stretch as far as it needs to.
Review your policy often so renovations and upgraded appliances are accounted for, consider inflation and building costs as they are today, look at hiring a surveyor to tell you how much it would cost to rebuild your home, and do not rely on generic or insurer online calculators.
“Those tools can be wildly inaccurate because they don’t capture demolition, compliance costs, consultant fees, escalation or detailed construction reality,” Sadlier said.
Even with cost of living high, the advice is not to reduce cover or cancel your policies.
Sadlier said reducing your insurance cover is “one of the most dangerous places to try to save money”.
“If you’re hamstrung between affording cover or going without, try shopping around as a first port of call,” Canstar data insights director Sally Tindall said.
Soaring property prices sent the total value of the country’s 11.4 million residential dwellings towards $12 trillion by late 2025, but Ford said people should not fall into the trap of ”insuring your home for its real estate value”.
“That usually includes the land your house is sitting on. If you do that, you could end up over-insured and paying more than you need to for cover,” he said.
All information in this article is general in nature and does not take into account your personal circumstances. You should always seek independent, professional financial advice from a licensed expert before making any financial decisions.
