How to choose a figure for total loss insurance?

I'm wanting to call our insurer and get quotes for insurance for four houses in Brisbane. One is brick, three bedroom, one bathroom, two storey but living all on upper floor, downstairs just storage/rumpus/car accom, laundry, spare loo, not legal height.

Another is breeze block construction, stucco, four bedroom, one bathroom, single storey, no car accom under the main roof.

Other two are timber. One is post war, three bed, one bath, deck.

Second one is large(ish) queenslander, five bedrooms, (three are tiny rooms), two bathrooms (DIY - nothing too flash), large lounge/dining, highset on stumps, nothing underneath but stumps, storage and third toilet.

I asked a builder if he could put some sort of replacement cost on one single level, upstairs living, downstairs storage and battened in queenslander a few months back. He said he wasn't comfortable doing that for insurance purposes, and we would need a quantity surveyor to estimate what the replacement cost would be in the event of total loss.

I've been told by that same builder (in another call nothing to do with insurance questions) that he can build a four bedroom, two bathroom double storey house for me and I'd get change out of $300K.

I'm just wanting to get an idea of what we insure these houses for without going to the expense and trouble of getting in a quantity surveyor. The insurer we are looking at allows 20% for site clearance and preparation (architect fees?) for new build after total loss, so we don't need to allow for site clearance.

None of these houses are mansions so I'm wondering how other investors choose insurance replacement costs for their houses.

I'm thinking of just making each one $300K. In the event of total loss for any of them, we would not be building anything more than four bedroom, two bathroom double storey houses to replace what is there.

Am I missing something, or does that sound sensible.

(In years past I used to over insure, but these days it is a costly thing to do.)
 
When you visit each insurance company's website, they usually have some sort of online quoting tool.

As part of your online quote, it also usually calculates your building replacement cost. If there are parts of the form you were not so sure about (e.g. your property has some out of the ordinary element), you can ring up their call centre afterward to try and modify the quote or ask any questions.

Be sure to ensure that you factor in not only the cost to rebuild, but also costs for demolition/debris removal as that can be significant as well.

my 2 cents anyway...
 
$300K sounds way too low to me. There are two issues:

1) Dangers of under-insuring.

2) Reference point with regard to replacement value.

I've talked about the dangers of under-insuring before, and will assume you know about them. :) e.g. Per this post

What you may not realise - as I didn't fully appreciate until having to make a large claim myself - is that it's based on what you had, and characteristics beyond "3 bedroom brick home". So if it was architect-designed, your replacement cost would be based on the replacement cost of an architect-designed 3 bedroom brick home. Any other characteristic of your property that makes it more expensive to rebuild - double level, unstable soil, steep site, etc. - is also factored in.

It is no good defence to an allegation of under-insurance to say: "well, I had an architect-designed home but I'd be happy for it to be replaced with a project home".

If you have a total loss, per the referenced thread, and you are happy with "less" than you had, you'd be OK if, and only if, your insurer is happy to cash settle your claim, and that amount is enough to get you what you'd settle for as an adequate replacement.

But the insurer's not obliged to cash out our claim; they can - and some do - insist that you rebuild exactly what you had (possible exceptions for code compliance). And if you've insured for $300K, but rebuilding exactly what you had would cost $500K, the insurer can say: "until you stump up the extra $200K, no rebuilding is happening". What if you don't have $200K? :eek:

Seriously, over-insuring is much, much less expensive than over-insuring.

And we had our pretty ordinary but large-ish (6 BR) brick and tile home insured for $620K when it was destroyed 4 years ago. I thought I was way over-insured, and that it'd be lucky to cost $450-500K to replace. The replacement cost - including architect's fees, demolition, approvals, fencing, temporary fencing during construction, etc. - came in at $890K. It blew out a lot because a lot of the building techniques used aren't common now, so they're expensive these days, and the reference point is *exactly* what you had; not what you'd build today.

I queried the figure because I found it hard to believe, and the QS said he got a colleague to check it and the absolute maximum they'd feel comfortable adjusting it downwards would be about $5K, so they were pretty confident.

I wouldn't insure any 4BR brick-and-tile house for under $500K. Building on a new estate is an entirely different proposition - and much, much cheaper - than knocking down and rebuilding an existing house in a developed area.
 
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Be sure to ensure that you factor in not only the cost to rebuild, but also costs for demolition/debris removal as that can be significant as well.

There is a 20% allowance on the insured figure to cater for clearing costs, so I feel comfortable enough with this allowance.

$300K sounds way too low to me. There are two issues:

1) Dangers of under-insuring.

2) Reference point with regard to replacement value.

I've talked about the dangers of under-insuring before, and will assume you know about them. :) e.g. Per this post

Thanks Perp. I do fully understand it and worked in the insurance area of a bank, so I've always over-insured, but the reality is that with my high starting point plus the insurer's propensity to increase the insured amount each year, we have ended up with insurance that seems way too high for the houses involved.

What you may not realise - as I didn't fully appreciate until having to make a large claim myself - is that it's based on what you had, and characteristics beyond "3 bedroom brick home". So if it was architect-designed, your replacement cost would be based on the replacement cost of an architect-designed 3 bedroom brick home. Any other characteristic of your property that makes it more expensive to rebuild - double level, unstable soil, steep site, etc. - is also factored in.

It is no good defence to an allegation of under-insurance to say: "well, I had an architect-designed home but I'd be happy for it to be replaced with a project home".

If you have a total loss, per the referenced thread, and you are happy with "less" than you had, you'd be OK if, and only if, your insurer is happy to cash settle your claim, and that amount is enough to get you what you'd settle for as an adequate replacement.

But the insurer's not obliged to cash out our claim; they can - and some do - insist that you rebuild exactly what you had (possible exceptions for code compliance). And if you've insured for $300K, but rebuilding exactly what you had would cost $500K, the insurer can say: "until you stump up the extra $200K, no rebuilding is happening". What if you don't have $200K? :eek:

Seriously, over-insuring is much, much less expensive than over-insuring.

This is the bit (underlined) that does worry me. To be honest, none of these houses described in my initial post are anything other than pretty ordinary houses, though in good condition. There is nothing fancy, designer or "out of the ordinary" about any of them. The one I do think I might increase again is the five bedroom, two bathroom queenslander. But it started out as a three bedroom, one bathroom queenslander and one long skinny bedroom was split in two, and part of a verandah is enclosed, so it really "isn't" a typical five bed/two bath that you might envision.

I'm going to do some more questioning before these insurances come into effect in a couple of weeks, but if we suffered a total loss of any of these houses, we would not rebuild a copy of what was lost. I did check with the insurer if we would be forced to rebuild "like for like" and was told no, but I want to read that for myself in the prospectus.

If we could rebuild with a two storey four bedroom, two bathroom house (as we have been told by the builder who was giving us ballpark figures for another property we are looking at developing), we would be more than replacing what we would be losing for any of these houses.

For me, the dilemma is that in the event of a total loss, the insurance company would come back with "you were underinsured". We have extensive photos of internal and externals of all these houses, so I feel reasonably confident we could support our view that $300K (plus 20% of that figure for site clearance/preparation) would more than adequately cover the loss.

To be honest, in the event of total loss of any of these, the land component would be close to the value of land plus house, so I'm fairly comfortable, but I think more homework is needed and then I'll make a better decision.
 
I don't have just a couple to do. Paying a valuer is expensive if there is a better way. Build cost per square metre seems sensible.
 
insurance, removal of debris...

Removing the old house , rubble ghastly lead, asbestos etc etc will push rour costs up...
Total loss of building needs plenty of skips....:eek:
Suggest you speak wit your insurer and make sure that is in the quote?

I hope this helps!
 
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