Total replacement home insurance (sometimes called complete replacement home insurance) works like this: if an insured event like a fire or storm destroys your home, it can cover the cost of rebuilding your property to its previous state.
Most home insurance policies don't do this; with most, you select how much you want to insure your property for (sum insured).
Total replacement cover home insurance policies reduce the gap between the amount your home is insured for and what it actually costs to rebuild the home to its original condition. As a result, they tend to cost more.
The often cheaper alternative is a sum insured safeguard. This is a "safety net" that can provide up to an additional 30% of cover on top of your sum insured if your home is destroyed.
There are two main types of home insurance available:
| Total replacement cover | Sum insured cover |
|---|---|
| You don’t set a cover limit. | You set a cover limit. |
| The insurer pays the total cost of rebuilding your home. | The insurer pays up to your limit if your home is damaged by an insured event. |
| It's worth considering if you don’t know how much it will cost to rebuild your home. | It's worth considering if you know how much it will cost to rebuild your home. |
| The best protection against underinsurance. | Has a higher risk of underinsurance. |
According to the Insurance Council of Australia, 83% of Australian homeowners and renters are underinsured. To make sure you have the right amount of home insurance, there are two main methods for working out the cost:
"It's important to factor in expenses such as demolition of your damaged home, removal of the debris that is leftover and also, planning for the new home. These are considerable factors that can add significant costs to the overall rebuild costs, particularly where a policy sum insured doesn't factor in any additional costs for these expenses."
Angelo Azar is the Chief Operating Officer at Honey Insurance.
Regardless of whether you choose total replacement or sum insured home insurance, it’s essential that you shop around before you commit to any one policy. By comparing the features and costs of a range of policies, you’ll find the best value for money for your individual circumstances.
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