Getting the right amount of cover for your home: Sum insured & underinsurance

Purchasing a home is no small feat, and when it comes to protecting your biggest asset, ensuring you have the right level of protection is crucial.

In the event of the unexpected, if your Sum Insured amount if too low, you risk experiencing financial hardship when looking to rebuild. 

Your Sum Insured needs to cover everything from demolition and labour to construction and fixtures, all of which can be incredibly costly. In what would undoubtedly already be a stressful time, worrying about your finances is the last thing you need. If you have no choice but to cover the costs yourself, you may have to settle for a home of a lesser size or quality, or even take on the role of rebuilding yourself.

By reviewing your Sum Insured amount, ensuring it remains up-to-date and accurate, you can avoid the financial pressure of rebuilding should you need to. For instance, if you’ve renovated or added to your home, it’s important that this is reflected in your Sum Insured, which can be amended at any time you see fit.

What is included in the Sum Insured?

If you needed to rebuild your home (following a natural disaster for example), the Sum Insured is the maximum amount the Insurer will pay you, after any applicable excesses. So before your replacement home insurance policy is taken out, your broker will discuss the various ways you can nominate a suitable amount.

When homeowners decide on a Sum Insured that isn’t sufficient for their needs and preferences, they may find themselves in a position where they can’t afford to rebuild their property to the quality and size it was initially. 

So to avoid future financial stresses, it’s important to examine your situation well and get your Sum Insured amount right. To do this, you’ll need to take various potential costs into consideration, including labour, materials, demolition, professional fees, removal of debris and the like.

Calculating your Sum Insured

The Sum Insured is purely based on how much rebuilding your home is likely to cost and doesn’t take into account factors like market or land value.

If your Sum Insured doesn’t cover all of the costs incurred when rebuilding your home, you will need to pay the shortfall, so ensuring that you determine a suitable, accurate amount during policy discussions is crucial.

When it comes to working out your Sum Insured, you can:

• Speak with or engage a licensed builder, quantity surveyor, architect or registered valuer;
• Use the independent online Cordell Sum Sure calculator to do it yourself;
• Discuss your options with your broker, ensuring that you’re fully aware of what your policy includes and that certain items, such as swimming pools, are covered appropriately.

If this article has brought up any questions about your Sum Insured, please don’t hesitate to contact your insurance advisor.

Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.

The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.