Underinsurance — having a sum insured lower than your home's actual rebuild cost — is the most common and most expensive home insurance mistake. Construction costs in Australia have risen 25-40% since 2021 driven by materials, labour shortages, and elevated demand. Many homeowners haven't updated their sum insured to reflect this; typical underinsurance gaps now sit at $100-300k.

The component costs to consider: base build ($1800-2500/m² for project homes, $2500-3500/m² for mid-spec custom, $3500-5000+ for high-spec); demolition and site clearance ($25-80k depending on size and asbestos); fit-out premium (10-25% above base for stone benchtops, ducted air, premium fixtures); professional fees (5-10% for architect, engineer, council, certifier). Total rebuild cost for a typical 180m² home in 2025-26 Australia is often $700-900k+ — well above many older sum insured amounts.

The risk: if you're materially underinsured (typically more than 20% gap), your insurer may apply 'average' to a partial claim — paying a proportional fraction of the loss rather than the full amount. So a $50k partial claim could pay only $35k if you're 30% underinsured. For total losses, you simply receive the sum insured (not enough to rebuild). Get a current rebuild quote from your insurer or use Cordell's online calculator at least every 2-3 years; update your sum insured at each renewal.