Home Insurance: Sum Insured Based on Original Build Cost

It's time for renewing the home insurance, but I haven't reviewed the cover in a while. I've just had AAMI's 'Complete replacement cover' for the longest time.

Suppose I have the original build cost of the house from 2005, how much would the rebuild be relatively? 200%? 250%?

Some info:

  • Sydney
  • Flat land
  • 2-storey
  • Double-brick

Comments

  • Suppose I have the original build cost of the house from 2005, how much would the rebuild be relatively?

    How long is a piece of string? Was it a high end build, a volume build? Did you put marble down or lino?

    How many bedrooms and bathrooms?

    • I was hoping to keep it simple, just to get a 'build cost inflation' number.

      Above average+. 4.5 beds. 4 bath. Not marble, but good tiles, etc.

      • +1

        Add waste removal cost as well - labour and disposal.

        Simpler method is to pay an valuer.

        • Simpler method is to pay an valuer.

          This. Plus, if valuer is way out and you have to make a claim, if the insurer has any problems you're covered by the valuer's professional indemnity insurance.

          Get it valued every five years or so and sleep well at night.

  • +1

    Or look at volume builders building the same number of bedrooms and toilets + 10% on top.

  • +2

    most insurance quote websites have questions that you answer to give an estimate
    .

      • That's a pretty handy tool. Gonna have to save that one.

        It's giving me a ~40-50% build cost inflation. I think it's a bit under, but a good data point nonetheless. Thanks.

    • Yes, but I wanted to use an alternate metric. Because build cost has a million variables in it, I was hoping someone could chime in with a ballpark number of how much the cost of building has changed over time. Like a CPI for building cost.

  • I'd look at what new homes in your area are selling for (yes I realise it includes land costs but it will give you a rough idea) and take an average. Then add $100k for any demolition works. If the premiums are too high, you can always drop the valuation a bit.

    Otherwise, if you want something more accurate-ish but still free, call a couple of local real estate companies to say you're thinking of selling and do they offer a free property report. Then add $100k for demolition works.

  • During my call with the people at AAMI, I managed to disclose that had more bedrooms than the policy said I had originally (didn't include studies before). They said they would've covered me anyway (technically underinsured but CRC negates that), but now that I've told them, well, now I have a 30% higher premium for technically the same cover.

    I had to pay for the renewal anyway as it was due. For now, I'm covered but I will need to revise it when I get time to get an accurate value.

  • I always find the insurer's calculators end up with numbers that are waaaaaay over what I would consider reasonable. I also question if they would ever just write a total loss check for those amounts or insist on building a replacement knowing that's the far cheaper option.

    I questioned this once years ago after buying a home for ~$450k and their calculator suggested $1.3M in insured value, even after tweaking down a whole range of factors it still was recommending $800k+ This was also after looking at building a (slightly smaller) home for ~$600k including the land!

    I did a quick and dirty estimate using Cordells just now and it says over $900k for my current place. Compare that with something like this what I've copied below and one of them is waaaaay out.

    Even if I doubled the below estimates they are still well outside what the calculator tells me I should insure for? So who is right? What does it really cost to build a house?
    Source: https://propertyupdate.com.au/how-much-on-average-does-it-co...

    I do think some of these are on the low end, but still…


    A budget-style, basic home:
    From $160,000 for a 3-bedroom home and from $190,000 for a 4-bedroom home. For a turnkey package, add approximately $18-20,000.

    A standard home:
    From $180,000 for a 3-bedroom home and from $200,000 for a 4-bedroom home. For a turnkey package, add approximately $20-22,000.

    A premium, higher end home:
    From $200,000 for a 3-bedroom home and from $220,000 for a 4-bedroom home. For a turnkey package, add approximately $22-25,000.

    Adding an additional story can add around $80-100,000 to the cost of construction.


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    This link is a few years old and comes with a pile of asterixes… (I would suggest adding the larger of 25% or $100k to the 'base' costs as a minimum) but it does seem to show that the $900k recommended insurance value for my place is maybe a little high?? I could almost build TWO of any house on that list?!

    https://1kei6w307v302l500m2zm8wy-wpengine.netdna-ssl.com/wp-...

    • Thanks for the link. Not having been through the building process myself, that PDF with the inclusions pricing is quite interesting.

      For the purposes of my arriving at my rebuild value, I've landed at about 200% of the original build cost. Which unfortunately means my premium has gone up about 30%.

  • I found the minimum insured building values to be crazy. I have a single storey 4 bed 2 bath house in Sydney and all the insurers I got quotes from set a minimum build cost of $700k+; I can't fathom how a comparative new build would be anywhere near that.

    • +1

      The pessimist in me says it's all about increasing premiums.

      I'd love to hear from anyone who has actually had a full loss event and how that turned out? Could you push to have a stupidly fancy house built that actually cost $700k plus whatever margin of "extra piece of mind cover" they claim to be providing? Or better yet, just write me a check for $700k and call it done??

  • https://www.yourmortgage.com.au/mortgage-news/construction-c...

    CHIP report from corelogic says residential costs increased across Australia by 3.6%. Its a paid report tho someone quoted the 2020 increase in the above article

    Some insurers go based on a REEDs report valuation which jokingly values my home I cant sell for 400k at 700k+ for building value replacement.

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