The humble suburban home is likely to be the most valuable asset for most Australians, and what’s inside it can be much more valuable than many homeowners imagine.

Logic says insuring it for less than what it would cost to rebuild or replace in the event of a disaster could leave you thousands of dollars out of pocket.

But a recent survey conducted by the Insurance Council of Australia found 80 per cent of households believe they underinsure their homes.

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“That means they won’t be able to resume the same quality of life and they won’t be able to rebuild if the worst was to happen,” says ICA spokesperson Campbell Fuller.

Finding the right policy might take a bit of tinkering but doing your homework could prove crucial to safeguarding precious valuables and the family home.

“In the end there’s no point in buying a policy if it doesn’t cover you for what you need,” Mr Fuller says.

“The issue is about the level of engagement consumers have with their insurance. The guidance we offer is geared around ensuring that they’re empowered to make the right decisions about the amount of cover that they need.”

Here are some tips on how to avoid underinsuring your home.

Read the Product Disclosure Statement

“Insurance is a legal contract between the insurer who is making the promises and the customer,” Mr Fuller explains. 

“The product disclosure statement actually sets out what is and isn’t covered.”

Be upfront

When taking out a policy it’s important to be honest when revealing details about your home.

“You need to tell the insurer anything that might affect the risk to the property,” Mr Fuller says.

“You also need to make sure that the property itself is kept in good order and well maintained. If you fail to disclose things, that could affect how the insurer responds to the policy. It’s about transparency and providing the right information.”

Work out how much cover you need

The Insurance Council of Australia has several free online tools and calculators to help consumers work out whether they have enough insurance and the value of their household items.

The ICA’s Household Inventory Checklist will allow you to carry out a room-by-room inventory of the items in your home to find out how much it would cost to replace your belongings.

It’s handy for checking your current cover to see if you come up short.

Identify the types of risks you’re exposed to

For people in some parts of Australia, the likelihood of certain risks like flood might be higher.

Mitchell Watson, research manager at financial house Canstar, says people should take into account anything mother nature can throw at you. 

“The extent of cover required for such defined events will largely depend on a home owner’s location,” Mr Watson says.

“However, things like theft, accidental breakages and motor burnout of major household appliances are all elements everybody should make sure they are adequately covered for.”

Choose a policy that suits your needs

When armed with all the right information, the next step is to pick a policy that suits your budget and needs.

Mr Fuller says consumers are well within their rights to choose a policy with lower premiums, but should be aware of the potential risks if things turn pear-shaped.

For example, a home might be insured for $200,000 and destroyed by fire that is covered under the policy.

But the rebuilding costs might equate to $350,000, meaning the home owner will need to make up the remaining $150,000.

“The cheapest policy may not be the one that suits individual requirements,” Mr Fuller says.

“Each policy is different. Each policy has different inclusions and exclusions so the consumer needs to look very closely at the kind of risk that their property might face and then look for a policy that suits their needs.”

Review your policy 

It’s important to update your cover regularly and review the sum you are insured for as your circumstances change.

After renovating or upgrading household items, consider whether you’ll have enough insurance cover to account for the improvements.

Shop around

Canstar recently released its annual Home and Contents Insurance ratings report, looking at 120 products from 49 different providers.

It revealed average premiums for home and contents insurance across states.

In Victoria, home owners are paying $897 for combined home and contents cover, while in New South Wales it was $1362.

Flood-prone Northern Queensland was the most expensive at $4838.

Steps you can take to get better value out of your cover include bundling all your general insurance policies with one provider, which can often result in a 5-10 per cent discount, and opting for a higher excess will also generally lower the cost of your insurance premiums.

Paying your premium annually rather than monthly can also trigger healthy discounts.