How to decide how much “sum insured” for building & LL insurance?

Hi friends, we are renting our PPOR which turns into our IP this week. I am looking to get out of our weatpac home owners insurance to building+LL insurance. How to decide how much sum insured?

Some of the online quote ia showing cost of building sum is $560k- $680k! I am pretty much sure that the house will not need more than $350000 if we to be built new again! Its a 4bed 2bath double garage house in Goulburn NSW and rent is $480/week. How do I figure out what should be my sum insured?

 

Hi Fay,
Yes it's always a challenge calculating the correct replacement cost of a home. Most insurance companies use some form of calculation guide. Is that what you are referring to when you say they are "quoting"?

You need to factor in things like:

The BAL (bushfire) rating of your home.

You can check its BAL rating here:

Check if you're in bush fire prone land - NSW Rural Fire Service

If my link worked - I'm on my mobile atm.

The BAL rating can effect what kind of building materials you must use to rebuild. Probably your insurance company will have programmed that data into their site or will invite you to use a link to Cordells.

Is the home on a sloping block?

What year was it built?
Single or double brick?
Single or double storey?
Concrete/slate/clay tiles or tin roof?
How many sq metres worth of house is it?
How much would it cost to demolish and remove rubble?
Would soil testing need to be done before rebuilding?
How much hard landscaping do you have there?
What standard of fittings do you have?
Has the local council changed its building rules since your house was built? For instance, is a water tank now compulsory?

Forgive me if you are already aware of all these considerations, you didn't give much info in your question.

The rebuild cost being recommended by your insurer usually seems too much if you have not calculated all these factors in.
I am not trying to give you advice because I'm not a financial adviser. But I used to work for NRMA Insurance which is why I think a lot about these issues!

 

I struggle with this all the time. Ring them up and ask what the lowest is they will insure you for, they normally have a range they won’t go below as they feel this may result in underinsuring. The first number they give you is usually well above the minimum.

As an example I built a place for $280k the calculator told me to insure for $490k!!!!

 

easy is to take a quote from a builder for a fully complete home. or if you are sure that you can build similar house for 350k, add another 50k for demolition and get it insured for 400k.

It might also depend on bank valuation, if bank values the build at 450k, you would need to insure it for 450k.

most of the investors on forum use Terry Scheer or EBM. Hope this helps.

Regards

 

The online calculators appear to give high estimates a lot of the time but could be a number of reasons. The main reason could be that it takes 5 minutes to fill in the online calculator but I suspect it takes longer than this to decide on choices when building a house which indicates to me that the calculators are using a fairly simple formula.
KateSydney has a few good points to think of.
Don't forget that when you are building new you are starting from a clean slate and not from a site which has the remains of the original house in most cases.
In a total loss house fire a lot of people are underinsured.

 

I tend to just use Aami for the buildings insurance then chose their "Complete Replacement" option, don't need a limit then, they'll rebuild what was lost at whatever it costs.

 

Agree totally and as a rule of thumb I tend to add 20% of the build from new cost to cover all these other costs involved in a total loss scenario. Even using that in the above scenario the level of cover worked out to be $326k not $490k.

I think this had an impact on the policy of adding an extra $200 / year. If you have a reasonable number of properties in your portfolio this can start having a material impact on CF.

 

Oops - AAMI was fined a couple of years ago for misleading statements about complete repacement cover. Try searching about the Wye River bushfires, that was what brought it all to light. Previously claims handling was exempted from the financial services definition. It won't be in the future as a direct result of the Hayne referral on this issue. The reason the public is not aware of the Hayne Commission problems with the Complete Replacement cover previously sold by AAMI, is that AAMI, being a part of the Suncorp group of companies, was often not named in the newspaper coverage of the Royal Commission. It was often named as Suncorp. I did wonder at the time if this was a deliberate obfuscation by the press to avoid damaging the reputation of one of their biggest advertisers?

 

Interesting, what was the outcome then? Do the have a get-out clause somewhere? They still sell it as Complete Replacement as I've just moved PPOR and took a new policy out with them just before Christmas.

 

I wouldn't be using any of the major banks for insurance. Go with a specialist provider as when the proverbial hits the fan, you won't want to go through what they put you through to get paid.

- Andrew

 

More fine print in it now. So for customers who read their PDS, they can see what can actually happen.

 

I guess I'd better go read it then.