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Calculating the replacement cost of your home and contents

Last updated on Feb 04, 2022 
It’s estimated that 23% (or 1.8 million) of Australian households aren’t covered for buildings or contents insurance, and therefore aren’t protected if the worst or unexpected occurs. It’s also estimated that a further 80% of homes are underinsured, which is a concern given the increasing intensity and frequency of catastrophic loss events including hailstorms, bushfires, floods and cyclones.
What is underinsurance and how does it happen?

When a policy doesn’t fully cover the cost of replacing your home and contents, you might be underinsured. One reason this can happen is if you inaccurately calculate the replacement cost of your home and contents. With the cost of building a new house having increased four-fold over the past 20 years, it’s vital to calculate your rebuilding and replacement costs accurately.

Insurers use indexation rates to increase the sum insured to adjust for increased costs when you’re offered your insurance renewal. Despite this, as noted by ASIC:

”More Australians have inadequate protection, with the Australian Securities and Investments Commission stating that up to 80 percent of homeowners are underinsured. If the total amount you have insured your home for is less than what it would cost to rebuild then you are underinsured.”
This is why it’s important to check the cost of replacing your home and contents at each renewal so that the sum insured is adequate.
Calculating the replacement cost of your home and contents

Building code changes that could impact significantly on the cost of rebuilding, and renovations are two factors to be aware of when checking the sum insured. It’s also important to consider cover for the cost of demolition and the removal of debris related to the destroyed or damaged part of the building.

One way of calculating the replacement cost of your home and contents is by using online calculators that work out 'the sum insured'. The most reliable and thorough calculators ask many detailed questions. Take a look at our home building and contents replacement cost calculators to help you estimate the replacement cost of your home and contents. 


Estimating the sum-insured cost for your home

With the family home being the primary asset for many Australians, it's vital for homeowners to know the precise replacement cost. As construction costs have increased, particularly in the last 10 years, it's important to calculate the replacement costs accurately.

There are two main methods for estimating the sum-insured cost (the amount it would cost to rebuild and replace your home and contents). The 'cost per square metre' approach is based on the house size and some very basic information, but can be very inaccurate in terms of actual replacement cost.

More advisable is 'elemental estimating', which tends to be more closely aligned to the actual cost. It takes into account different elements of a building and calculates rebuilding costs using local wage and material prices.

”It’s vital for homeowners to know the precise replacement cost.”

Our home building replacement cost calculator asks questions about your buildings including the location, period of construction, size (area and floors), construction quality and materials used. Other features of the house such as bathrooms, kitchens, balconies, garages, security, heating, lighting and water systems are considered in terms of their number and size to provide more specific data to help estimate the replacement cost.

It’s important to note that our calculator is an estimate based on averages. Your specific circumstances may be different: to determine the replacement cost of your buildings, you’ll need to consult an architect, a builder or a valuation expert. 

Estimating the sum-insured cost for your contents

Contents insurance covers the cost of replacing or repairing your possessions. With four out of five Australian property owners and tenants underinsured, it's essential to have your possessions correctly valued.

When it comes to estimating the replacement cost of contents, online calculators can be used, however CHOICE Home and Contents Insurance buyers guide recommends a better (although admittedly more labour and time intensive) method is to record how much it would cost to replace every item in your house. Bear in mind that many items can be overlooked due to their everyday nature including crockery, cutlery, bed linen, books, DVDs, Blu-Rays, clothing and footwear – but these would still have to be replaced in an insured event. Download the Understand Insurance household inventory checklist (Excel, 155KB) to help you keep record of your items.

Taking clear pictures and retaining proofs of purchase (such as receipts) will also help in the calculation of the true cost of your contents, should they need to be replaced. Our home contents replacement cost calculator can help you estimate your contents' replacement cost. The initial estimate is based on the quantity and quality of your contents and the number of rooms, balconies, garages and sheds.

The special items pricing area allows you to put down the precise value of possessions you consider valuable to you, such as jewellery. This needs to be specified in your policy. Based on this information, the calculator makes an estimate of your possession, for example, the number, quality and value of diamonds. You should also consider the Product Disclosure Statement for how you’d be covered for items such jewellery or items considered valuable or need to be noted on your policy.

After the initial estimate, you can modify the assumed possessions list to make the estimate more accurate. The calculator is provided by Sum Insured, a company that specialises in the research and production of building contents information. It’s important to note that our contents calculator provides an estimate based on averages. To determine the replacement costs of your specific contents you will need to consult a valuation expert or compile a detailed inventory of all your contents.

How to avoid underinsurance
It's vital to calculate the replacement cost of your home and contents accurately so you don't end up with extra replacement costs if your home or contents are damaged or destroyed. Regularly adjusting the sum insured on your home insurance policy based on the accurate calculation of replacement costs will help you avoid underinsurance.

This article has been prepared by Allianz Australia Insurance Limited ABN 15 000 122 850 AFSL234708 (“Allianz”). In some cases, information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way.

Any opinions expressed constitute our views at the time of issue and are subject to change. Neither Allianz, nor its employees or directors give any warranty of accuracy or accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in this article.

Any advice here does not take into account your individual objectives, financial situation or needs. Terms, conditions, limits and exclusions apply. Before making a decision about this insurance, please consider the relevant Product Disclosure Statement (PDS)/Policy Wording and Supplementary PDS (if applicable). Where applicable, the PDS/Policy Wording, Supplementary PDS and Target Market Determination (TMD) for this insurance are available on this website.

Allianz Australia Insurance Limited ABN 15 000 122 850 AFS Licence No. 234708 is the insurer of any general insurance products offered on this website.

Allianz Australia Life Insurance Limited ABN 27 076 033 782 AFS Licence No. 296559 is the insurer of any life insurance products offered on this website.