What is underinsurance?

Underinsurance is when your farm insurance policy does not adequately cover the cost of replacing or rebuilding the items you are insuring.

How underinsurance can occur

When purchasing an insurance policy, insurers may ask you to select an insured sum, which is the amount you estimate it would cost to repair or replace your building.

The insured sum is also the maximum amount the insurer will cover for the building in the event of a claim.

However, replacement costs can increase over time, due to rising costs for construction materials, labour, energy, and other market factors.

At the time of a claim, if your insured sum falls short of the replacement cost, you may have to pay out of your own pocket to make up the difference.

Reduce your risk of underinsurance with Achmea Australia’s guarantee against underinsurance

Our All-in-One Farm Pack offers Guarantee Against underinsurance optional cover, which is available for eligible farm buildings.

With this option, we will arrange and pay for the repair or rebuild of your insured building to the same condition as when it was new – whatever the cost – or we will pay you the equivalent amount.

“With Guarantee Against Underinsurance on our packing facility, we are fully covered if something unexpected happens, like a fire. The extra level of protection we gain from having this additional cover is essential to our operations.”

Sam Russo, Group Accountant, The Casotti Group

Factors that may cause underinsurance

  • Miscalculating the replacement cost when selecting an insured sum.
  • Failing to update your policy for market changes or renovations.
  • Costs of materials and labour increasing after a natural disaster.
  • Intentionally reducing the insured sum to lower premiums.


Underinsurance can leave you financially exposed. You may find it challenging to cover the costs to rebuild infrastructure or purchase equipment.

It can also make it challenging to get your operations back up and running after a loss, leading to extended downtime and loss of income for your farming business.

Recovering from a natural disaster may be challenging and overwhelming. Dealing with the consequences of underinsurance can add to the pressure for you, your family and co-workers.

Example of underinsurance

Insured Sum versus Guarantee Against Underinsurance for a farm building with a replacement cost of $200,000.