(Last updated April 2025)
The irony is palpable. Insurance is meant to protect us, yet in 2025 it sometimes feels like a luxury. Premiums are climbing at double or triple the rate of general inflation, and household budgets are straining. It’s a dangerous game – cut cover to save money (risking under-insurance), or pay through the nose for comprehensive cover (risking over-insurance). Let’s break down what’s happening and how everyday people like you and me can strike the right balance.
The Premium Squeeze in 2025
Sticker shock is real. In the past year, the average home insurance premium jumped 16% – roughly an extra $359 annually out of your pocket. Some insurers hiked rates by 30% or more. Car insurance hasn’t been spared either, with comprehensive policies overall costing about 42% more than five years ago. Even private health insurance, usually a steady climber, saw its biggest increase in years – up 3.73% on average in 2025. In short, if it feels like every type of insurance is getting pricier, you’re not imagining it.
These rising premiums aren’t abstract percentages; they hit real people. 1.6 million Australian households are in “extreme insurance stress,” spending over a month’s income just on insurance each year. In some high-risk areas, home insurance quotes are coming in absurdly high – A family in Queensland got a renewal notice for nearly $7,500 on their house. No, that’s not a typo. Little wonder over one in four Aussies now have no home or contents insurance at all– they’ve been priced out, effectively self-insuring and hoping for the best.
Meanwhile, others grit their teeth and pay up to stay covered. It’s absurd but it’s become a (new) ‘classic’ Aussie dilemma: too little insurance could ruin you, but too much insurance might break you. So how do we audit our policies to find that sweet spot? Let’s go category by category, with an eye on both the numbers and the human stories behind them.
Home Insurance: Between Skyrocketing Costs and Risky Gaps
If you own a home (or even just rent), insurance is your safety net – and lately, that net has gotten expensive. Last year’s wild weather and inflation have driven home insurance premiums through the roof (sometimes literally through the roof). Insurers cite extreme weather, costly building materials and higher reinsurance costs as reasons for the hikes. The data backs it up: the cost to rebuild a house in Australia has jumped nearly 30% since 2019. That means if you haven’t updated your sum insured in a few years, you might be under-insured by a mile. A policy covering a $500,000 rebuild in 2019 might need to be ~$650,000 today to fully protect the same home. Sobering, isn’t it?
Under-insured? Many Australians are, often without realising. Under-insurance in home coverage basically means your insurance wouldn’t pay out enough to get you back on your feet after a disaster. It could be the Brisbane family with a $600,000 mortgage on their home who assume that amount is enough coverage – when in reality, rebuilding from scratch after a total loss might cost $750,000+ in 2025 dollars, leaving a huge shortfall. It could also be a matter of contents insurance: maybe you’ve insured $20,000 worth of belongings but actually own $50,000 worth of stuff. Or perhaps you’re a renter in Melbourne’s inner north, like Jess, age 27. Jess thought she didn’t have much to lose, so she skipped contents insurance. Then her Brunswick sharehouse got burglarized – laptop, bike, and musical equipment all gone. Suddenly she’s staring at several thousands in losses and no cover. That’s the brutal lesson of being under-insured.
Over-insured? Yes, it happens too. Being over-insured on your home means you’re paying for cover you don’t actually need. For instance, if you’re diligently insuring your home for $1.5 million when it would realistically cost $1 million to rebuild, you’re overspending – the insurer will never pay more than the rebuild cost, so those extra premiums are money down the drain. Some folks also pile on optional extras (accidental damage, high-end jewelry cover, etc.) that inflate costs, when perhaps they could do without. Are you paying extra to cover a diamond ring you no longer own? It’s more common than you’d think.
Then there’s the loyalty trap. Australians have a habit of “setting and forgetting” their home insurance – staying with the same insurer year after year. Insurers count on this, often rewarding new customers with lower rates while quietly hiking renewals for the loyal ones. That so-called “loyalty tax” can leave you overpaying significantly. One long-time customer from ACT discovered she was paying $500 more than she’d need to with another insurer for the same coverage. Her insured value had even been creeping down while premiums went up – essentially paying more for less cover! Over-insurance can sometimes simply mean over-paying.
Finding the balance: Start by checking your sum insured on your home/building policy. Is it enough to completely rebuild at today’s prices? Factor in not just materials and labour (which are pricier due to supply chain issues and trade shortages), but also debris removal and maybe temporary accommodation. If not, bump it up – being under-insured for a total loss could be financially catastrophic. At the same time, make sure you’re not insuring “air” – don’t include your land value, for example, just the house. If premiums have become unmanageable, consider increasing your excess (the amount you pay if you claim). Raising the excess by, say, $500 can lower premiums by around 10% on average– just be sure you could actually afford that higher excess in an emergency.
Also, shop around. In this market, it’s almost foolish not to. More than half of insurers raised prices for 90% of their customers last year, but a few bucked the trend – e.g. RACQ barely increased premiums at all, and one insurer (Guild) even cut prices on average. The spread is huge. Get quotes from a few competitors or use comparison sites; if you find a better deal, you can try asking your current insurer to match it like Henri in Queensland did – he saved $2,250 off his $7.5k premium by showing a competitor quote. And if they won’t come to the party, don’t be afraid to switch. Loyalty won’t pay your rebuild.
For renters, the advice is slightly different but just as critical. Contents insurance for tenants is relatively affordable – often just a few hundred a year for $25,000 of cover – and it can be a lifesaver. Even if you’re young and rent a small flat in Carlton or Newtown, think about the cost to replace your clothes, phone, laptop, furniture, appliances if a fire or theft hit. It easily runs into the tens of thousands. If you truly own very little, you might be over-insuring by buying too much cover, so don’t overstate your contents value. But at least consider a basic policy. It’s a myth that the landlord’s insurance will cover a tenant’s belongings – it won’t. Under-insurance for renters usually means no insurance at all, which is a risk to your financial stability.
Finally, keep an eye on deductions and discounts. In NSW, for example, a big chunk of your premium is actually fire and emergency services levies and stamp duty (taxes can add 20–40% to the cost). We can’t avoid those, but we can make sure we claim any allowable tax deductions (such as landlord insurance being deductible for an investment property, or contents insurance if you have a home office portion). Every bit helps.
Car Insurance: Finding the Right Cover for Your Ride
That old saying “keep the wheels turning” now applies as much to your finances as your car. Car insurance premiums are surging, and motorists are feeling it. The average car insurance policy (across all types) runs about $929 a year now, but that figure includes lots of bare-bones third party policies. If you’re a typical driver wanting comprehensive cover, you’re likely paying much more – the Australian Automobile Association pegs the average annual car insurance cost in capital cities at about $2,736, with Sydney drivers coughing up a whopping $3,691 a year on average (no, that’s not all rego – that’s insurance!). Even Hobart, the cheapest capital, is over $2,150 on average. In short, insuring a car can easily rival a couple months’ worth of rent or mortgage payments. No wonder a recent survey found 15% of Australians rank car insurance as their “most dreaded” bill, right behind electricity bills.
Given these costs, it’s critical to assess if your car cover makes sense for you. Over-insured drivers are out there. How can that be? Consider this: you’re paying top dollar for comprehensive insurance on a clunker – say a 15-year-old Corolla worth $1,500. If your premium is $800 and your excess is $1,000, a total loss payout would net you basically nothing. In that scenario, a cheaper third party property policy (which covers damage you do to others but not your own car) might have been more sensible. Over-insurance with car cover often means paying for coverage that exceeds the value or usage of the vehicle. Another example is stacking on expensive add-ons: did you tick the option for a free rental car after an accident, roadside assistance, windshield cover, and the no-excess windscreen option? Those can be useful, but each one costs extra. If you have access to a second car or could do without for a bit, maybe you don’t need the rental car add-on. If you already have NRMA/RACV roadside membership, you don’t need to pay the insurer for roadside too. Check you’re not double-dipping.
How about under-insured drivers? The clearest case is folks driving around with no insurance beyond the compulsory third-party (CTP) that comes with registration. CTP covers injuries to people – it won’t pay a cent for damage to cars or property. Yet plenty of people roll the dice, figuring their old bomb isn’t worth insuring. I get it – if your car is a junker, it might not merit full comp cover. But at minimum, every driver should have third party property insurance. If you accidentally rear-end a Mercedes, you could be liable for tens of thousands in repairs. Without at least third-party property cover, that financial hit could ruin you. So not having that is being dangerously under-insured.
Even with comprehensive policies, under-insurance can lurk. For instance, if you use your car for rideshare or business purposes and haven’t told your insurer, you might find out at claim time that you’re not covered during those activities. Take Dan, a rideshare driver in Adelaide. He assumed his personal car insurance had him