Insuring Your Home: Calculating Sum Insured

When it comes to insuring your house, it's important to calculate the sum insured to ensure you have adequate coverage in case of any unforeseen events. The sum insured is the maximum amount your insurer will pay for a single insured event, and it should be enough to cover the cost of rebuilding your home and replacing your belongings. To avoid being underinsured, the sum insured should reflect the current prices of rebuilding and replacement. There are several methods to calculate the sum insured for your house, including using online calculators or seeking professional valuations from architects or builders.

Cost-per-square-metre method

The cost-per-square-metre method is a quick way to estimate the insurance needed to rebuild your home. It calculates the average cost per square metre to rebuild your home. However, it may not accurately reflect the actual replacement costs.

To use this method, you need to find the cost per square metre to rebuild your home. You can do this by talking to local builders or other professionals to get a sense of the average building cost for homes constructed from similar materials in your area.

Once you have this information, you can multiply the cost per square metre by the total square metres of your home to get an estimate of the rebuild cost.

For example, if the average cost per square metre to rebuild a home in your area is $3,000 and your home has a construction floor area (CFA) of 230 square metres, the estimated reconstruction cost would be $690,000 (230 square metres x $3,000/square metre).

It is important to note that this method may not take into account actual building costs or unexpected fees, which could put you at risk of being underinsured. Therefore, it is recommended to consult with a professional builder or architect to get a more accurate estimate of the sum insured for your home.

Elemental estimating method

The elemental estimating method is a way to calculate the sum insured for your house. It is a detailed assessment that considers the many 'elements' that make up your home. This method can help you avoid being underinsured. Here are the factors that you need to consider:

• The size of individual rooms.
• Construction quality and materials used (e.g. high-quality or prestigious).
• Construction period (e.g. Victorian, Federation, or contemporary).
• Additional features including bathrooms, garages, balconies, lighting, heating, and security systems.
• Features like solar power and air conditioning.
• Local building codes.
• The cost of removing debris.
• The property's accessibility, including the slope of the land.
• Building permits and architect, builder, or surveyor fees.
• The cost of temporary accommodation while you rebuild.
• The cost of any necessary council approvals and fees.
• Regional differences in building costs.
• Whether your policy covers demolition, levelling, or landscaping.

While this method may take longer, it can provide a more accurate estimate of the sum insured for your house. You may also find it helpful to consult with a professional builder or architect who has experience in valuing homes.

Use a home building calculator

Using a home building calculator is a great way to estimate the cost of rebuilding your home and, therefore, the sum insured. This is important because the sum insured is the maximum amount your insurer will pay out for any one insured event.

There are several home building calculators available online, and they will ask you a series of questions to determine the rebuild cost. For example, the Building Journal calculator asks for your location, the square footage of the living area on the main floor, the ceiling height, and the structure class of your home. The structure class takes into account the complexity of your home, including the number of roof lines and whether the ceiling height changes.

The Remodeling Calculator offers a more detailed breakdown of costs. It asks for the foundation size of your home (excluding the garage), the number of bathrooms, the build quality, the number of levels, the roofing and siding materials, and any extra features such as a garage or deck. It also asks for your location, as construction prices vary depending on the region.

It's important to note that these calculators provide estimates and may not include all costs. For example, the Remodeling Calculator estimate does not include the cost of land, demolition, plot levelling, architect fees, or permits. Therefore, it's a good idea to consult a professional builder or architect who has experience in valuing homes to ensure you have an accurate sum insured.

Consult a professional

Calculating the sum insured for your house can be a complex process, and consulting a professional can help ensure you have adequate coverage for your home. Here are some reasons why seeking professional advice is beneficial:

Expertise and Experience:

Professionals such as qualified property valuers, quantity surveyors, architects, or building contractors have the necessary expertise and experience to accurately assess the replacement cost of your home. They can guide you through the complexities of calculating the sum insured, ensuring that you don't underestimate or overestimate the value.

Detailed Assessment:

Professionals will take into account various factors when evaluating your home's rebuild cost. They will consider the construction period, construction quality, materials used, and any additional features such as bathrooms, garages, balconies, lighting, heating, and security systems. This detailed assessment helps determine a more precise sum insured, so you don't end up underinsured or paying higher premiums than necessary.

Accuracy and Peace of Mind:

By consulting a professional, you can be confident in the accuracy of your sum insured. They will help you navigate the intricacies of replacement cost calculations, providing a thorough evaluation of your home's value. This accuracy gives you peace of mind, knowing that your home is adequately covered in the event of a claim.

Insurance Policy Selection:

Professionals can also advise you on selecting the right insurance policy for your needs. They can explain the different types of home insurance coverage available and help you navigate the fine print of insurance policies. This ensures that you understand the specifics of your coverage and make an informed decision about protecting your valuable asset.

Regular Reviews and Updates:

It is important to regularly review and update your sum insured to account for changes in your home or the market. Professionals can provide ongoing support by helping you monitor and adjust your coverage as needed. They can advise you on when to increase your sum insured, ensuring that your coverage keeps pace with rising costs and reflects any renovations or improvements made to your property.

In conclusion, consulting a professional when calculating the sum insured for your house is a prudent decision. Their expertise, experience, and attention to detail will help ensure that your home is adequately protected, giving you peace of mind and confidence in your insurance coverage.

Update your sum insured regularly

It is important to update your sum insured regularly and at each policy renewal to ensure it is accurate and up to date. This is because the costs of labour and building materials can change rapidly, and you want to make sure you have enough cover in the event of a claim. For example, if you have made improvements or alterations to your home, you should update your sum insured. This could include renovations such as revamping your kitchen or adding a permanent fixture like a pizza oven in your backyard. These additions will increase the amount it would cost to rebuild your house, so it is important to adjust your sum insured accordingly.

Similarly, if you sell valuable items, you can reduce your contents sum insured. This could save you money on your premium. It is your responsibility to check that your contents sum insured is up-to-date and reflects the costs of repairing or replacing your belongings. You should regularly review your cover, especially at renewal and any time you make changes to the things you own.

If you do not have the right amount of cover, you may not be able to replace all your contents if they are destroyed. For example, if you are underinsured, you may have to pay the difference at claim time. Therefore, it is important to accurately track and calculate the replacement cost of your home and its contents. You can do this by using online calculators or consulting with a professional such as a builder, architect, or quantity surveyor.

By updating your sum insured regularly, you can ensure that you have the appropriate level of cover and avoid being underinsured or overinsured.

Frequently asked questions