Insurance and building costs

[geoffw]

Hi,

I recently had estimates for extensions to a block of flats, which indicated that new building costs were too high for me to develop.

And, being in Canberra, near bush, I realise that Insurance is critical.

I heard that in Ash Wednesday, that not one victim had adequate insurance.

It makes me realise that probably, not one of my insurance policies (ppor or ips) is adequately covered.

Do companies provide (at least in more peaceful times) assessments of what they think a house and contents is worth?

I had heard stories that if you under insure, you miss out, but if you over insure, they also reduce benefits by the amount you over insure by. So it would be extremely hard to get a fair amount.

 

[Jas]

Lots of insurers have content calcs, but I don't know of any with building cost calcs. What I did was look at the big building companies and estimated from what they sell their places at. Don't forget to add in demolition and removal costs for the old place.

Jas

 

[bundy1964]

The last house insurance we got had a guide to prices based on sq meter for double brick and b/v. Every state would have a different cost base though, some of the glossies handed out here by the builders list house only prices as well.

bundy

 

[Kevmeister]

I had heard stories that if you under insure, you miss out, but if you over insure, they also reduce benefits by the amount you over insure by. So it would be extremely hard to get a fair amount.

Now I doubt insurance companies are "fair", but I guess the point is that if you under-insure the insurer hasn't collected a sufficient premium to pay out the full replacement value. If you over-insure, you are getting something for free to which you are not entitled.

Generally speaking, the point of property insurance is that you should not inordinately "profit" from a "loss" (eg. house burning down), nor should you incur a loss either (except perhaps excess).

The interesting point is that if your house is insured for $1 million and only worth $100K the assessor is going to reduce the claim, and likewise if the $1 million house is only insured for $100K, the assessor will only pay out $100K. But the assessor is therefore placing some intrinsic value on the property in doing this. I wonder how they come to that conclusion when it has been totally destroyed by fire, for example, for the very thing you are trying to value is non-existent?

If you have spent $500K building a house in a $100K area (ie. overcapitalised big time), you're still entitled to insure it for $500K and if it burns down, you should be entitled to get your $500K to rebuild it again. I wonder how they therefore work out what they are prepared to pay out, since in this example any "market value" is irrelevant?

 

[Joe D]

Kevin
In the overcapitalised case I am sure the insurer would not go out of their way to show other than typical market value and the onus of proof would still rest with you to demonstrate otherwise.

Probably a good reason to retain a (below concrete) floor safe or to store copies of important documents at a separate location (bank, lawyer, acct etc).

Rgds
Joe D

 

[warreng]

Geoff,

Insurers will not give a valuation on rebuilding properties. They shy away for the legal implications. A register valuer is best and they have indemnity insurance to protect you.

The other alternative is to get a guide from Cordell Building & Info Services or Rawlinsons. Both have guides on residential rebuilding costs.

I know there is a lot of tallk about market values, nobody should be insuring for market value. It should be replacement.

If you overinsure, you are paying too much. If you underinsure, which most people do without realising, then you should check the policy to see if the insurer penalises you for that. Some do but most don't.

Regards,

Warren