% of sum insured to be required by CBA

Just got a conditional approval from CBA that requires a building insurance.

Our house is on a 600sqm flat block, 4 / 2 / 2, not in flooding / bushfire zone

Building and pest building report shows the house is in average condition. Without any structural issues.

CBA ATM valuation = our purchase price = 375,000

How much is minimum sum that the house needs to be insured for?
Is it acceptable to the bank if we aim at $360,000?

Thank you for any thoughts.

 

Thanks Rolf, but we use the cba online calculator, the rebuilding cost is 489K, if we only insure 360K, will this be unacceptable to CBA mortgage officer?

 

Why would you want to insure for less than the rebuild cost? This is to insure against destruction of the property.

 

Why don't you ask your broker to confirm what the minimum amount needs to be? Get accurate information direct form the source

 

We haven't ask for quotes yet, but we wonder if the insurance premium could be much more expensive for 129K increased insured amount..

 

We asked, but no definite answer.

 

Valuers are independent and it would be safer to insure as per the amount they recommend to insure if not more. This will make the bank happy and eliminates “underinsurance” with the insurer.

Check the online quotes. The difference won’t be much.

 

There are calculators for determining replacement cost. You may only be thinking of the dwelling. There are other costs to add to avoid being underinsured. Undrinsurance can lead to reduction in payout. Eg If you are 50% insured they may payout UNDER 50% eg In the example below if you insured for $367K they would pay $281K

Rebuild Cost $364,660
Professional Fees$13,382
Demolition$54,927
Subtotal$432,969
GST$43,297
TOTAL$476,266


Tools and calculators
Underinsurance calculator

 

Then why would you insure the land component of the purchase price? Land doesn't burn down.

The bank will advise you via the broker. But that just covers the bank's interest in the property. You need to include your interests as well, as others have said.

 

Just insure for whatever you want and send it in. If there are issues they will let you know and you can up it. Some lenders just require it to be insured, but other require specific amounts.

 

There are plenty of ways to save money. Skimping on insurance is not one of them. Especially when it is a house and probably one of the most significant investments of your life.

I have my house over insured by around 250K. You do not want to be in a situation where your house is a total loss and you are under insured.

 

I'm with the OP, I underinsure. I don't necessarily need the value of the rebuild, given that the rebuilt property would be worth substantially more than the original property and have depreciation.
If you don't want to underinsure, that's obviously fine and probably the prudent thing to do, but I don't think having a blanket rule of "underinsuring=bad" is quite right.