Building insurance for IP

Interested in whether forum members tend to "over" or "under"- insure the "sum insured" amount for their IP building insurance.

I'm with Terri Scheer, and for an IP where I have the building sum insured amount as $515K, my annual premium is $1,465. That is a reasonably significant ongoing, recurring expense, and so I spoke to them today to enquire further.
If I reduce my building sum insured amount to $300K, then my insurance premium reduced to $1025.

It is not easy to estimate accurately, but I would think the $515K is the more reasonable cost of "replacing" the entire brick veneer 2-storey house should it burn down completely. However, I figure that I could take a calculated risk and knowingly under-insure. Even if a major event, such as a storm that damages the entire roof or flooding that damages the timber floors - the repair bill would still be easily covered by $300K. I'm thinking that the only risk of under insuring is if the whole house is damaged and needs to be re-built.

Interested in the approach and logic the experienced forum members have with regard to this. The IPs that I'm talking about are located in family friendly, reasonably safe middle ring - and so the tenant quality is reasonable. If you have several IPs, then these annual premiums do all add up.

Counter argument is not worth risking saving few hundred dollars premium to risk being unable to replace an entire house building in the event of a rare catastrophic event.

 

If you under insure and the house is only partly damaged then you only get a portion of the insurance, and that portion will be less than if you were correctly insured.

So you may end up having to pay significant out of pocket costs.

Do you have contents and building?

Could you increase your excess to get a cheaper rate?

 

Is it worth risking that extra 215k of Coverage to save $440 a year? How much do you think it would cost to rebuild the house? Some insurers have a minimum that they'll let you go as replacement cost. For example I just built a house for 190k but the insurers say they want me to pay for 220k replacement coverage. Better to be safe than sorry.

 

Not always. Some insurers may not have this arrangement.

"Maybe" is the answer and it will be an individual response depending on numerous things including your appetite for risk, financial situation, stage of life.
Ask yourself if you can sleep soundly at night if the worst case scenario was to happen.

 

Easy for the OP to ask about the effect of under insurance on partial damage and see what their insurer would do in the case of under insurance.

 

I am with Terri Scheer, and I'm happy to be corrected if my understanding is incorrect. I did exactly that and asked TS about the situation of partial damage. They pay out any repair bills up to the maximum of the sum insured, and this is for the insured year. So, if the sum insured amount was $200K, even a major damage to building that costs $150K would be covered. And if in a subsequent year, another major event occurred, resulting in repair bill of say $100K, that would also be covered, ie. it is not cumulative. I would think that the situation just outlined for example sake would be pretty rare, let alone a catastrophic event that required the entire building to be re-built??

Also, how do people come up with their estimate of the building replacement cost? Is it a rough guesstimate or use some online calculator, or ask the guy who did the building & pest inspection?

 

But are you under insured?

 

Yes, I am under-insured for replacement cost of the entire building should there be such a catastrophic event. The guy who did the Bldg & Pest inspection estimated $515K to be the replacement value. I am proposing that I knowingly under-insure to an amount of $300K, because this would still cover most major events. But I would be under insured if the whole house burnt down for example.

 

OK, my previous insurance company took a different approach. They spelled out the fact that if I was under insured they would only pay a proportion based on their valuation of the percentage I was insured. So, if the house sustained damage costing $100,000 and I was under insured by 50% that they would only pay 50% of the cost of that claim, even if i was insured for much more on paper.

I might chat to Terri Scheer.

 

Careful about under-insuring. Remember it's not just the cost of the build you need to cover. For instance, you might need to pay for a demolition (and a demolition permit). Other possible costs include architect fees etc for the new dwelling, plans and permits with council, etc.

 

I think a lot of people forget about these cost..

 

My bank had the clause in the loan contract. You need to have the insurance upto their estimates which was higher than all estimates that I got, incl the B&P guy.

 

My bank required a certain level of insurance too, and for my popr it had to be with one of the insurers from a list the bank provided!

 

I'd rather over insure than under. In a worst case scenario you'll need to pay for demolition & disposal of remaining property, site clearing, council approvals, all the stuff involved with building a new dwelling, turnkey stuff ready to rent out again.