How to Calculate your Sum Insured
The rebuild sum insured is an important part of your insurance policy, so it’s important you take some time to get a good estimate.
Rebuild Sum Insured, Not Market Value
Your sum insured should equal the cost to fully rebuild your house to its current size and standard, in today’s building costs.
What else should you consider?
As well as the house itself, rebuild costs of other structures like fences, and swimming pools need to be included.
Remember that if your house needs to be completely rebuilt after damage, there are extra demolition costs involved.
It’s also a good idea to add a buffer to account for building costs that tend to rise with inflation over time.
Imagine two neighbours with identical houses that would cost $500,000 to fully rebuild.
- Neighbour A doesn’t give their sum insured much thought, and use $2,000 a metre to insure for $400,000
- Neighbour B thinks the sum insured should equal their house’s market value, and insure for $750,000
Now imagine an earthquake completely shakes both houses to the ground.
Neighbour A is under-insured. The lower of the sum insured or rebuild cost is their max payout, so they receive $400,000 from the insurance company. Neighbour A faces being $100,000 short if they want to build a similar house.
Neighbour B is over-insured. The max payout is the cost to rebuild, as it’s lower than the sum insured. They receive $500,000, which is enough to rebuild but they’ve been paying for extra cover they don’t need.
Getting it right
If the neighbours accurately insured for (or slightly over) $500,000, they would save the stress of being short when they rebuild, while also saving by not over-paying any premium.
Still not sure?
We recommend getting an estimate using the Cordel Sum Sure Calculator.
It uses council data on things like your house’s size, building materials etc to estimate the rebuild costs of your house. You can then compare this to what you have in mind.