Building Insurance Question

[Reeg]

G'Day All,

I was wondering how others go about calculating just how much building insurance to purchase for a home. Taking a stab in the dark is one way but probably not the best

Can anyone else offer any thoughts as to how you can determine just how much to take, so that you have enough in the event of a catastrophe, but not so much that you are just throwing good money away.

Much Thanks,

Richard.

 

[MarkB]

Richard

Speaking with some element of insight I can at least tell you the following.

Insuring a building for what it is worth (now) will not be sufficient cover (remembering that buildings depreciate).

A building should be insured for what it costs to replace it with a comperable building.

As to how much that is?

MB

 

[MarkB]

Richard

Further to my earlier post.

Just as underinsurance leaves you in the lurch, overinsurance is similiarly of no benefit.

Say you have a building insured for $400 k, when to rebuild it would only require $300 k. After the property has (for example) burned down, the loss assessor will come out, have a look at what is left of the building and make an assessment of what the insurance company will pay to have it rebuilt.

So, if your building was 2BR, single garage and one storey, just because it is burned down and overinsured doesn't mean that you can have it built as a 4BR, Double garage, two storey place.

You may choose to have yoru building rebuilt as a 4BR place, but if the loss assessor has calculated that it will cost $300 k to rebuild your earlier building - then that is the limit of the cheque that you'll get from the insurance company (even if your insurance policy said $400k).

For some estimate of possible building costs, see the website below:

http://www.aami.com.au/

then click on: OUR PRODUCTS > HOME INSURANCE > BUILDING INSURANCE > BUILDING CALCULATOR

and follow the prompts.

Happy insuring.

MB

 

[stirling]

I have wondered about insurance when buying 30 year old public housing in a remote rural area. Cost $30,000 to buy including land, cost $80,000 to rebuild. Would I want to insure for $80,000 to rebuild when I can buy a similar place for $30,000 including land. No sane person would rebuild.

Stirling

 

[MarkB]

Stirling

That is a good point.

I can think of two possible reasons why you would want to rebuild for $80k.

I'm not a tax expert, but I would imagine that you could depreciate the value of the new building.

Plus, a new building should be able to rent for more than an old one.

MB

 

[strangep]

Hi Reeg

Most insurance companies have a schedule of average home building costs for different types of build, usually quoted on a square metre basis. I think most of their estimates come from Rawlinsons Australian Construction Handbook.

To work out the replacement value firstly you have to work out the floor area of the house, then you multiply by the av. build. cost / m2.

This is the figure you quote to your insurance company and they'll work out the premium based on that.

Be careful though as there may be rules for dealing with carport and verandah areas and other permanent improvements such as fences, pools, sheds, air conditioners etc.

Check with your insurance company for more specific info on their preferred procedures. Some put out leaflets explaining the calculations eg. Suncorp in Queensland.

Hope that helps.

Cheers

Paul

 

[geoffw]

The trouble with an approved cost per square metre is that it's quoted on the rate apoplicable when the insurance is bought.

When it's come to Canberra people rebuilding, the rate psm has gone up perhaps 10% to 20%, as an obvious result of demand and supply.

Many people were underinsured to begin with- but even allowing for that, even a fully insured person would not be able to rebuild without incurring extra cost.

There's still a lot of blocks coming onto the market, and I suspect that it's because more people are realising that they cannot afford to rebuild.

 

[MarkB]

Geoff

As I understand it, a "good" insurer will factor in increases in building costs and, as a result, each year the sum insured for the building will rise by a certain amount - it could be 5%, 8%, 10%.

But, as you say, it is no windfall for persons who are underinsured to start with.

At best all it does is maintain their relative level of underinsurance.

MB

 

[strangep]

Hi MB, Geoff

That's what happens with the insurance on our house over here and I'm expecting the same from Suncorp back home.

Every year the sum insured for rebuilding goes up by an amount something like inflation.

Cheers

Paul

 

[geoffw]

Paul & MB,

The problem in Canberra was that, because of all the building required in Canberra, the rebuilding cost went up way beyond inflation- I thought it was close to a 20% jump in six months.

I think that people with extra money are moving in- and people who had houses which were burnt out have been able to buy elsewhere for a more reasonable amount, after getting not bad prices for their land.