How Much Building Insurance Do I Need? (Australia 2026)
Getting building insurance right is not just about having a policy — it is about having the right amount of cover. After every major Australian natural disaster, thousands of homeowners discover they are significantly underinsured. Here is how to calculate the correct sum insured.
The Core Principle: Insure for Rebuild Cost, Not Market Value
The most common mistake in Australian home insurance is insuring for the property’s market value — which includes the land. Land cannot be destroyed, so it should not be part of your sum insured.
Building insurance should cover the rebuild cost — what it would cost to:
- Demolish the remaining structure
- Remove debris
- Rebuild the property to its current size, quality, and features
- Cover professional fees (architect, engineer, certifier)
- Cover council fees and building permits
- Temporary accommodation costs during rebuild (if policy covers this)
The rebuild cost may be significantly lower than the market value (in expensive suburbs where land is valuable) — or it may be higher than the market value (in areas where construction is expensive but property prices are lower, such as rural or regional areas).
Why Underinsurance Is Common in Australia
Underinsurance occurs when your sum insured is less than your actual rebuild cost. After natural disasters:
- Many Australians were found to be underinsured by 20–50% (Insurance Council of Australia research)
- If underinsured, the insurer may pay only a proportional amount of the claim (the “average” clause)
- The shortfall is the homeowner’s responsibility
Causes of underinsurance:
- Setting the sum insured using market value instead of rebuild cost
- Not updating the sum insured as building costs rise (construction costs have risen significantly in Australia since 2020)
- Using insurer calculators that produce estimates based on average — not accounting for high-quality finishes, unusual construction, heritage features
- Setting the sum insured once and never reviewing it
Construction Cost Benchmarks (Approximate, 2025–26)
Building costs vary by state, location, construction type and quality of finishes. These are approximate figures — use as a starting point only:
| Construction type | Cost per m² (approximate) |
|---|---|
| Standard brick veneer house | $2,000–$3,000/m² |
| Project home (volume builder) | $1,500–$2,200/m² |
| Double brick construction | $2,500–$3,500/m² |
| High-end or bespoke construction | $3,500–$6,000+/m² |
| Apartment/unit (strata) | Covered by owners corporation |
These are indicative ranges only. Get a proper assessment from your insurer’s calculator or a quantity surveyor.
Example:
- House floor area: 250m²
- Construction type: Brick veneer
- Estimated rebuild cost: 250m² × $2,500/m² = $625,000
- Plus professional fees, demolition, permits (~15–20%): ~$125,000
- Total sum insured: ~$750,000
This may be significantly different from the property’s market value.
How to Calculate Your Rebuild Cost
Option 1: Use Your Insurer’s Online Calculator
Most major Australian insurers (NRMA, AAMI, Suncorp, Allianz, etc.) provide an online building cost calculator. Input your property’s features, size, construction type and location. This is a reasonable starting point.
Option 2: Use the Cordell Sum Insured Calculator
The Cordell Sum Sure Calculator is used by many Australian insurers internally. Some insurers allow public access or use this as their embedded calculator.
Option 3: Commission a Quantity Surveyor
For high-value, heritage, or complex properties, commissioning an independent quantity surveyor or building valuer provides the most accurate rebuild cost estimate. This is worthwhile if your property has:
- High-quality or bespoke finishes
- Heritage listing or unique construction
- Large floor area or complex architecture
- Pool, outbuildings, or significant landscaping
Option 4: The Insurance Council of Australia Resource
The Insurance Council publishes information on underinsurance at underinsurance.com.au — including guidance on calculating adequate cover.
What to Include in Your Sum Insured
Don’t forget to include:
- Main dwelling (all living areas, bedrooms, bathrooms)
- Garages and carports (attached or detached)
- Outdoor structures (pergolas, sheds, pool, retaining walls — check policy)
- Fences (check if separately covered or included)
- Fixed inclusions (built-in kitchens, bathroom fittings, light fittings, floor coverings, air conditioning)
- Demolition and debris removal (often 10–15% of rebuild cost)
- Professional fees (architect, engineer, certifier — often 10% of rebuild cost)
- Council permits and fees (1–3% of rebuild cost)
Reviewing Your Sum Insured Annually
Building costs in Australia increased substantially between 2020–2024 due to labour shortages, supply chain disruptions and materials cost inflation. A sum insured set in 2020 may be significantly inadequate by 2026.
Best practice: Review your sum insured every year at policy renewal. Some insurers automatically index the sum insured for inflation — but this indexation may not keep pace with actual construction cost increases.
Frequently Asked Questions
Does my lender set the sum insured?
No — lenders require you to have building insurance but they do not dictate the sum insured amount. The responsibility to insure adequately is yours.
What happens if I overclaim — can I make a profit on insurance?
No — insurance is based on indemnity. The maximum payout is the actual cost of rebuilding (or the sum insured, whichever is lower). Over-insuring wastes premium — you cannot profit from a claim.
Are pools and outbuildings automatically covered?
It depends on the policy. Most standard policies cover the main dwelling and attached structures. Pools, separate sheds, fences and other outbuildings may have separate cover limits or may need to be specifically noted. Check your PDS.
Related Guides
- Building Insurance for Home Loans — What Lenders Require
- Mortgage Insurance Hub
- LMI Explained
- All Costs When Buying a Home
This article provides general information about calculating building insurance sums insured in Australia. Rebuild costs vary significantly by property and location. Always use an insurer’s official calculator or a qualified quantity surveyor to establish your required sum insured. For advice tailored to your situation, speak with a licensed insurance adviser. Find one through MoneySmart.