Why Luxury Homes Are Being Underinsured in 2025 — And What High-Net-Worth Homeowners Must Do Now

Luxury homeowners across Australia are facing a risk that didn’t exist at this scale even a few years ago: massive underinsurance.With construction costs surging, supply chains tightening and insurers reclassifying high-value homes, 2025 has become the year where prestige properties are most vulnerable.

And the surprising part?Most high-net-worth homeowners have no idea they’re underinsured — until a major loss exposes the gap.

This isn’t a minor issue. For many luxury homes, the difference between insured value and actual rebuild cost can now be hundreds of thousands — even millions.

Here’s what changed, and what every luxury homeowner needs to understand.

Luxury architectural home featuring premium materials and bespoke design elements requiring accurate rebuild valuations and specialist luxury home insurance in 2025.

1. Rebuild Costs for Prestige Homes Have Skyrocketed

Since 2022, the cost to rebuild a luxury home has risen dramatically.Prestige properties often include:

• Imported stone and European finishes

• Architect-designed structures

• Large spans of glazing and engineered windows

• Custom joinery and specialised carpentry

• Smart home systems, security networks and automation

• High-end landscaping and outdoor entertaining areas

• Pools, cabanas, saunas and wellness spaces

All of these components are now far more expensive to replace than they were when most policies were originally written.

This means the sum insured on many high-value homes is outdated by years — and nowhere near adequate for today’s costs.

2. Retail Home Insurance Cannot Cover Prestige Properties

Standard insurance policies were designed for standard homes.

Luxury homes require:

• Specialised materials

• Skilled architectural trades

• High-precision engineering

• Custom fabrication

• Heritage or coastal compliance

• Higher levels of contents protection

Retail insurers simply can’t fund this level of reconstruction.

This is why many high-value claims end in disputes, caps or partial repairs.The policy was never designed for the home.

3. Coastal and Architectural Homes Are Now “High-Complexity Risks”

In 2025, insurers have begun reclassifying properties based on:

✔ Location (coastal, clifftop, harbourfront)

✔ Architectural design complexity

✔ Cost of materials

✔ Structural engineering difficulty

✔ Exposure to wind, moisture and salt air

✔ Increased weather-related events

Luxury homes in these zones require specialist underwriting, not generic home insurance.

4. High-Value Contents Are Often Capped at Low Limits

Another hidden source of underinsurance is contents.Prestige homes often contain:

• Art collections

• Luxury jewellery

• Designer furniture

• Rare or imported items

• Watches and valuables

• Custom interiors

Retail policies usually cap these items at a fraction of their true worth.

A home may look fully insured on the surface — but the contents may be underinsured by hundreds of thousands.

5. Many Policies Haven’t Been Reviewed in Years

The market has shifted dramatically since 2020.But many homeowners renew their insurance automatically, without ever updating valuations, adjusting sums insured or reviewing coverage conditions.

Meanwhile, rebuild costs have jumped 30–60% for prestige homes.

Without a review, underinsurance is all but guaranteed.

How Luxury Homeowners Can Fix Underinsurance in 2025

Here’s what high-net-worth families should do immediately:

✔ 1. Obtain a Specialist Rebuild Valuation

This is the single most important action.A proper valuation reflects the real cost of rebuilding your unique property today.

✔ 2. Move to a High-Net-Worth Policy

Luxury homes require luxury insurance — specialist cover designed for architectural and high-value properties.

✔ 3. Assess Contents at Their True Replacement Value

This includes art, jewellery, collections and bespoke items.

✔ 4. Review All Outdoor and Structural Features

Pools, saunas, outdoor kitchens and landscaping often require separate assessment.

✔ 5. Reassess Annually

Prestige home markets evolve quickly — your cover should too.

The Bottom Line: Underinsurance Is Avoidable — But Only With Specialist Cover

In 2025, luxury homes face more exposure than ever before.But with the right specialist policy, accurate valuation and expert support, high-net-worth homeowners can eliminate underinsurance entirely.

Prestige homes deserve prestige protection.And in today’s environment, nothing less will do.