(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 bett