Key takeaway: Underinsurance happens when your sum insured is less than the cost to rebuild your home or replace your contents. Before bushfire season, check your policy schedules, confirm your sum insured reflects current rebuild costs, verify bushfire is covered (not excluded), review your excess amounts, and update your contents inventory with photos and receipts.

Why Underinsurance Matters in Bushfire Season

Underinsurance leaves you exposed when a bushfire destroys or damages your home. If your sum insured is A$400,000 but rebuilding costs A$600,000, you face a A$200,000 shortfall. Rebuild costs have risen sharply in recent years due to labour shortages, material costs, and supply chain delays, making older policies particularly vulnerable to underinsurance.

According to the Insurance Council of Australia, many Australian households are underinsured by 20 per cent or more. In a total loss from bushfire, that gap comes directly from your savings (Insurance Council of Australia, 2026).

This checklist gives you the essential steps to review your cover before the next bushfire season.

What to Check Now: Your Bushfire Underinsurance Checklist

1. Confirm Bushfire Damage Is Covered

Check your Product Disclosure Statement (PDS) to verify that bushfire (and fire generally) is a listed insured event. Most comprehensive home and contents policies cover bushfire damage, but some basic policies exclude it or limit cover in high-risk zones. If you live in a bushfire-prone area, confirm there are no exclusions or special conditions tied to your postcode.

2. Review Your Sum Insured for Building Cover

Your sum insured must reflect the full cost to rebuild your home, not its market value. Market value includes the land; rebuild cost does not. Check your policy schedule for the building sum insured amount, then compare it against current rebuild costs in your area (use an online rebuild calculator, or ask your insurer or a licensed building valuer for an estimate).

If the sum insured is lower than the estimated rebuild cost, increase it immediately. You can usually adjust your sum insured mid-term by contacting your insurer; the premium will rise, but underinsurance is far more expensive in a claim.

3. Review Your Sum Insured for Contents Cover

List your contents room by room and estimate their replacement cost. Include furniture, appliances, clothing, electronics, kitchenware, and personal items. Take photos and keep receipts for high-value items (jewellery, art, musical instruments, sporting equipment). Compare your estimate against your contents sum insured on the policy schedule.

If the sum insured is too low, increase it. Remember that contents policies pay the replacement cost of items (at current prices), so the sum insured should reflect what it would cost to buy everything new today, not what you originally paid.

4. Check for Underinsurance Penalty Clauses

Many policies include an average clause (or similar wording) in the PDS. If you are underinsured by a certain percentage, the insurer reduces your claim payment proportionally. For example, if you are insured for A$300,000 but should be insured for A$600,000 (50 per cent underinsured), and you suffer a A$100,000 loss, the insurer may only pay A$50,000.

Read the PDS carefully to understand how underinsurance affects your claim, and adjust your sum insured to avoid triggering the clause.

Read also: Understanding Home and Contents Insurance Coverage in Australia

5. Verify Your Excess Amounts

Your excess is the amount you pay toward any claim. Policies often include a standard excess plus additional bushfire excess in high-risk areas. Check your policy schedule for all applicable excess amounts. If the combined excess is A$5,000 or more, make sure you have that amount saved in an emergency fund. A high excess reduces your premium but increases your upfront cost in a claim.

6. Update Your Policy for Renovations and Additions

If you have renovated, added rooms, or upgraded your home since you last reviewed your policy, notify your insurer and increase your sum insured accordingly. A new deck, extended kitchen, or additional bathroom increases the rebuild cost, and your policy will not cover the increased value unless you update the sum insured.

7. Check for Agreed Value or Indemnity Basis

Some policies offer agreed value (the insurer pays the agreed sum insured regardless of actual rebuild cost, provided you are not underinsured), while others use indemnity (the insurer pays the actual cost to rebuild or replace, up to the sum insured). Check your PDS to confirm which basis applies. Agreed value gives you certainty, but only if the agreed amount is adequate; indemnity can leave you short if costs exceed the sum insured.

8. Review Your Policy Annually

Set a calendar reminder to review your policy every year before bushfire season (typically October to March in most regions). Rebuild costs, contents values, and your personal circumstances change, so an annual review keeps your cover current.

What to Do If You Find a Gap

If your sum insured is too low, contact your insurer immediately and request an increase. Most insurers allow mid-term adjustments, and the premium increase takes effect from the date of the change. If your current policy excludes bushfire or has unsuitable terms, compare other policies using a comparison site or consult a licensed insurance adviser before the next bushfire season begins.

Always read the PDS and the Target Market Determination (TMD) for any new policy before switching, and confirm the new sum insured reflects current rebuild costs.

Next Steps

Complete this checklist now, before bushfire season arrives. If you are uncertain about rebuild costs or sum insured calculations, consult a licensed insurance adviser or a building valuer for a professional assessment. Update your contents inventory and store photos and receipts in a safe location (cloud storage or a fireproof safe). Finally, confirm you have the cash available to cover your excess if you need to make a claim.

For more guidance on home insurance and natural disaster cover, visit ASIC’s MoneySmart service at moneysmart.gov.au.

General Advice Warning: This article provides general information only and does not take into account your individual objectives, financial situation, or needs. Before acting on this information, you should consider whether it is appropriate for you and read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD). Consider obtaining personal advice from a licensed insurance adviser regarding your specific circumstances. Cover terms, exclusions, rebuild costs, and availability vary by insurer, by state and territory, and by individual property. Sum insured amounts and excess levels mentioned are examples only; verify current terms in your PDS or with a licensed adviser before deciding.