How to work out if your house is insured for the right amount

Before the Canterbury earthquakes of 2010 and 2011, house insurance in New Zealand was provided on a total home replacement basis. That meant you insured your house for a specific floor area, and if your home was completely destroyed, your insurance would pay to rebuild it to the same size. However, this presented insurers with a problem – it was impossible to work out what their potential total dollar risk was in a wide-scale event, such as an earthquake. So, in 2013, to continue to receive support from their global reinsurers, New Zealand companies began to change their house insurance policies to sum insured.

What is sum insured?

Instead of insuring your house for a maximum floor area, sum insured covers it for a maximum dollar value. This amount should be enough to cover the costs of demolition, building consents, architect’s fees and rebuilding, including landscaping such as fences, pools, or retaining walls.

How do I work it out?

There are several options available to work out how much it would cost to rebuild your property. You can hire a qualified valuer, assessor or builder to produce a Valuation for Insurance Purposes, or you can work it out yourself using an online calculator. Most insurers use this calculator provided by Cordell, a leading supplier of construction industry data. To estimate your property’s likely rebuild cost using this tool, you’ll need to know the following information:

·       Your postcode

·       The era in which your house was built

·       The standard to which your house was built (average, quality or prestige)

·       The slope of your section

·       The size of your home in square metres

·       The materials used to construct your home

·       Your ceiling height

·       The number and size of your bathrooms

·       The number and size of structures such as decks, garages and carports

·       Details about heating and digital wiring

·       Number of closets

·       Any extra special features such as solar panels, spa pools, central vacuum systems, etc.

Once you have entered all of these details into the Cordell calculator, it will provide you with an estimated sum insured for your property, based on current building costs.

What do I need to be aware of?

Under a sum insured policy, you will only be able to claim up to the amount specified. If you don’t insure for a large enough sum, you won’t have enough money to replace your current house in the event of a total loss.

On the other hand, if you over-insure, you’ll end up paying unnecessarily high premiums because insurers will only pay you the amount it costs to rebuild your home to its previous size and standard.

The Cordell tool is based on average values. If you have any non-standard features in your home that you want to ensure are covered, it may be worth paying for a professional valuation.

It’s also important to be aware that building costs tend to fluctuate rapidly, so your current sum insured may be incorrect in a year’s time. For this reason, it’s important that you review your house insurance annually, or whenever you make a significant change to your property. At Certus, we can help you review your house insurance needs. Call us today to talk to one of our experienced brokers.