Avoiding underinsurance: What to consider when buying home insurance

If the unexpected struck and your home was damaged or destroyed, would you have enough home insurance to start from scratch? 

How much coverage will you need to protect your home?

About four out of five Aussie homeowners don’t think they have enough insurance to resume their normal standard of living if their property was badly damaged or destroyed.¹ So, how do you know if there’s a gap in your coverage? It’s about understanding exactly how much of it you need. 

Sum insured cover

Sum insured cover is the most common type of home building insurance in Australia. To calculate a sum insured for your policy, you’ll let your insurer know how much cover you need when you take out or renew it. If your insurer agrees, that amount will be your sum insured, and your premiums will be determined accordingly.

To arrive at this figure, you’ll have to work out what it would cost to rebuild your home. Two ways of doing this are:

1. Estimating the cost per square metre to rebuild. Though this sounds straightforward, it could put you at risk of underinsurance because it assumes an average cost rather than the actual rebuilding cost.
2. Something called “elemental estimating”. This method, borrowed from the construction industry, takes into account other considerations you might make when it comes to your rebuild, such as fancy finishes and materials, or unexpected costs.

It’s also important to remember that if you renovate or make improvements to your home, you may need to update your sum insured accordingly, to avoid being underinsured.

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The unexpected costs of rebuilding

If your home is beyond repair, insurers will classify it as a “total loss”. This may mean you’ll be hit with additional costs, which are useful to factor into your sum insured. These can include:

• increased construction and material costs (eg after a community-wide event like a bushfire or a flood)
• the need to comply with new building codes
• the location of the property (ie the specific address, not just the postcode)
• the slope of the land (sloping land is usually more expensive to build on)
• the construction style (eg a historic building may cost more to build)
• the cost of removing debris, or
• the cost of temporary accommodation while you rebuild.

Try Suncorp’s Building Insurance calculator to help you estimate your cover. Just be aware, this estimate may not factor in extra fees.

Extra fees

If you’re building from scratch, you’ll probably need to apply to your local council for permits. You’ll also need to account for architect, builder or surveyor fees. Chat to someone who knows their stuff, like a builder or an architect, in advance of calculating how much insurance you need. That way, you’ll know how much to include in your sum insured for these extra fees.

Contents cover

When you’re considering insurance for your home, think about whether you’d like to cover the things inside it as well.

To work out the right amount of cover for your contents, you need to understand how much they’re worth. If you add new items to your sum insured as you buy them, especially valuable stuff like appliances and electronics, you’re less likely to wind up underinsured.

Suncorp’s Home and Contents Insurance offers cover for your home and the stuff inside it if they’re damaged in an insured event like a fire, flood or storm. You can opt to add a Safety Net to your cover and be insured for up to a further 25% or 30% of your sum insured, which can help you account for those surprise rebuild costs if your sum insured isn’t quite enough. You’ll even get a $100 discount when you quote and buy online!

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Read more:

• What is underinsurance?
• Tips to prepare for a home insurance claim
• How to protect your home from wild weather?

¹https://www.smh.com.au/money/insurance/under-insurance-leaves-householders-exposed-this-bushfire-season-20191030-p535of.html

Insurance is issued by AAI Limited ABN 48 005 297 807 trading as Suncorp Insurance. Read the relevant Product Disclosure Statement before buying this insurance. Target Market Determination also available. This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.

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