When the 2022 floods tore through Lismore, thousands of homeowners discovered something devastating: their insurance didn’t cover what they thought it did. Some had flood exclusions they’d never noticed. Others were underinsured by $200,000 or more. A few had policies that technically covered them but came with excess amounts so high that claims weren’t worth filing.

This isn’t just a natural disaster problem. The Insurance Council of Australia estimates that 83% of Australian homes are underinsured, with the average gap sitting at around $68,000. That’s not a rounding error. That’s the difference between rebuilding your house and being stuck with a half-finished shell.

Here’s where most people go wrong — and what to do about it.

Mistake 1: Confusing Market Value With Rebuild Cost

This is the big one. Your home insurance should cover the cost of rebuilding your house from scratch, not what you’d sell it for on the open market.

These are very different numbers. Market value includes land value, location premium, and current demand. Rebuild cost is about materials, labour, demolition of the damaged structure, council approvals, and compliance with current building codes.

In many cases, rebuild cost exceeds market value. A modest three-bedroom house in a regional town might sell for $450,000, but rebuilding it today — with current material prices, labour shortages, and updated compliance requirements — could cost $550,000 or more.

Some tools that help with better estimates are available at understanding.com.au, which offers a rebuild cost calculator. If you’re in doubt, having a quantity surveyor provide a proper estimate is worth the $300-500 they charge. It’s one of the most productive things specialists in this space often suggest businesses model into their own operational risk planning — knowing what your real exposure looks like.

Mistake 2: Not Updating After Renovations

You finished the kitchen renovation eighteen months ago. New cabinetry, stone benchtops, upgraded appliances. Total cost: $45,000. Did you tell your insurer?

Most people don’t. The insurance sum stays where it was when the policy was first taken out, sometimes years or decades ago. Every improvement you make widens the gap between what you’re covered for and what it would cost to replace.

Even small changes add up. A $15,000 bathroom refresh, a $5,000 deck extension, a $3,000 split-system air conditioning installation. If none of these are reflected in your policy, you could be $20,000+ underinsured from minor upgrades alone.

The fix is simple: call your insurer after any renovation or significant purchase. Yes, your premium will increase slightly. That’s the point. You’re paying for coverage that will actually cover you.

Mistake 3: Ignoring Contents Insurance

Building insurance covers the structure. Contents insurance covers everything inside it. Many people have one without the other, or have contents cover that’s wildly insufficient.

Walk through your house and mentally add up what you see. Furniture, electronics, appliances, clothing, books, artwork, kitchenware. Most people guess their contents are worth $30,000-50,000. When they actually itemise everything, the total is usually $80,000-150,000.

The easiest way to get your contents sum right is to do a room-by-room inventory. The ICA’s home contents calculator walks you through it category by category. Takes about thirty minutes and usually reveals you’re underinsured by at least 40%.

Photograph expensive items and keep receipts in cloud storage. If you ever need to make a claim, having documented proof of ownership makes the process dramatically faster and less painful.

Mistake 4: Not Reading the PDS

The Product Disclosure Statement is the document nobody reads. It’s 80 pages of dense legal language designed to make your eyes glaze over. But buried in there are the specific exclusions and conditions that determine whether your claim gets paid.

Critical things to look for:

• Flood vs. storm damage definitions. Some policies cover storm damage but exclude flood. The difference matters when your house is inundated — was it rainwater or river water? Insurers will investigate.
• Excess amounts for specific event types. Your standard excess might be $500, but your cyclone excess could be $5,000 and your flood excess $10,000.
• Maintenance exclusions. If your roof leaked because you didn’t replace damaged tiles, the insurer can deny the claim on the basis of poor maintenance.
• Temporary accommodation limits. If your house is uninhabitable, most policies cover alternative accommodation — but often with caps that wouldn’t cover six months of rent in your area.

Mistake 5: Auto-Renewing Without Comparing

Loyalty doesn’t pay in insurance. Full stop. Insurers routinely offer better rates to new customers while gradually increasing premiums for existing ones. The ACCC found that in some cases, long-term customers were paying 30% more than new customers for identical coverage.

Every year, take thirty minutes to get three or four comparison quotes. Use comparison sites as a starting point, then call the insurers directly — phone quotes are sometimes cheaper because the insurer doesn’t pay a referral fee.

And when you compare, don’t just compare premiums. Compare the sum insured, the excess, the exclusions, and the specific coverage features. A $200/year saving means nothing if the cheaper policy excludes the one thing you’ll actually need to claim for.

Getting home insurance right isn’t exciting. But getting it wrong is catastrophic. Thirty minutes of attention once a year is the cheapest protection you’ll ever buy.