Contents Insurance Explained: How Much Cover Do You Need?

Contents insurance covers the things inside your home, the belongings you would take with you if you moved out. It is one of the most common types of insurance and one of the most commonly misjudged, because the hardest part is not buying the policy. It is choosing the right amount of cover. This guide explains what contents insurance is, what it covers, and how to work out how much you actually need.

Key takeaways

• Contents insurance covers your movable belongings, not the building itself.
• The amount of cover you choose, called the sum insured, should reflect what it would cost to replace everything at today's prices.
• Most people set this figure by guessing, and most guesses are too low. This is why underinsurance is so common.
• The reliable way to get the number right is to take a proper inventory of what you own.

What is contents insurance?

Contents insurance pays to repair or replace your belongings if they are damaged, destroyed, or stolen by an insured event, such as fire, storm, flood, or burglary. Cover typically includes furniture, electronics, appliances, clothing, kitchenware, tools, sporting equipment, and personal valuables such as jewellery and watches.

It is different from buildings insurance, which covers the structure of your home. If you own your home, you usually need both. If you rent, you generally need only contents insurance, because the building is your landlord's responsibility. Renters often assume they do not need it at all, which is a costly mistake we cover in do renters need contents insurance.

What contents insurance usually does not cover

Policies vary, so always read your product disclosure document, but common exclusions and limits include:

• The building structure, which sits under buildings insurance.
• High-value single items above a set limit, unless you list them separately. Jewellery, art, and watches often need to be specified individually.
• Wear and tear, gradual damage, and lack of maintenance.
• Items used for business, which may need separate cover.

This is one reason a clear record of your high-value items matters. Knowing what you own, and which items exceed your policy's single-item limit, helps you set cover correctly.

How much contents insurance do you need?

The figure you choose is called the sum insured. It should reflect the cost of replacing all of your belongings at today's prices, not what you originally paid for them. We explain the distinction in sum insured vs replacement value, and it is worth understanding before you renew.

There is also a choice between two ways a policy pays out:

• New-for-old (replacement value): pays to replace an item with an equivalent new one. Higher premiums, higher payouts.
• Indemnity (market value): pays the depreciated value of the item, accounting for age and wear. Lower premiums, lower payouts.

Which one you choose changes both your premium and what you receive at claim time. We compare them in new-for-old vs indemnity.

Why most people get the number wrong

When people estimate the value of their contents, they picture the big, obvious items: the television, the sofa, the fridge. They forget that the majority of the total is made up of hundreds of smaller things. Clothing, kitchenware, bedding, tools, books, toys, and cleaning supplies add up to a sum that is almost always larger than people expect.

The result is widespread underinsurance. Across many markets, a large share of households are insured for less than it would cost to replace their belongings. If you are underinsured and suffer a major loss, you may be paid only a fraction of your true loss. We look at the scale of this problem in home contents underinsurance.

Contents insurance around the world

The principles are the same everywhere, but the details differ.

• Australia: Insurers offer both new-for-old and indemnity contents cover. Industry research has long pointed to widespread contents underinsurance. Single-item limits commonly apply to jewellery and valuables.
• United Kingdom: Contents policies often ask for a total sum insured or use a bedroom-rated estimate. High-value items usually need to be specified.
• United States: Renters and homeowners policies include personal property cover, often as a percentage of the dwelling cover, with separate scheduled cover available for valuables.
• New Zealand: Contents cover follows a similar new-for-old model, with sub-limits on certain categories.

Wherever you are, the safest approach is the same: base your sum insured on an actual inventory of what you own, not a guess.

The reliable way to set your cover

The only dependable way to choose the right sum insured is to know what you actually own and what it would cost to replace. That means taking a home inventory. Our complete guide to creating a home inventory walks through how to do it, including the fastest method.

WHIG makes the number concrete. You record a short video walkthrough of your home, and WHIG builds a complete, valued list of your belongings, estimating replacement costs from current retail pricing. You see a total you can take to your insurer, instead of a guess. Estimated, not a professional valuation, and you should always confirm your sum insured with your insurer, but it turns "I think it is about right" into a figure you can actually check. See how WHIG works.