House insurance

What would it take to rebuild?

Instead of insurance that would fully replace our home no matter what the cost (which some insurers still offer), these days most insurers require that we set our own level of insurance at a capped amount. Our ‘sum insured’ is the highest amount that our insurer will pay if our house is damaged beyond repair.

We need to set that sum ourselves, by figuring out how much would be needed to replace our home.

If we set our sum insured too low, we could end up not receiving enough to rebuild our home after a disaster and having to pay the difference. If we set our sum insured too high, we may be paying for insurance we don’t need.

More about sum insured

The sum insured should be set at the amount it would take to completely rebuild your home – including the costs of demolishing and removing what’s left of your old house, if necessary.

So you cannot base our estimate on:

• How much you paid for your house
• How much it cost you to build it
• How much it’s worth today
• How much its rateable value is
• How much the land is worth (since insurers do not insure the land)

Remember that the sum insured is the cost to rebuild, and it will change each year due to inflation and availability of materials and labour. And if you renovate, you’ll need to adjust the estimate once again.

You also need to consider other features on the property, such as the driveway, retaining walls or pools, as these are covered by your house insurance policy too.

Getting the sums right

To help work out the right sum, insurance providers have calculators. These have been adapted for New Zealand conditions and can give an estimate of what the cost to rebuild might be.

It makes sense to review these costs annually and adjust your sum insured if necessary.

It might be tempting to skip raising the sum insured every year in order to save money on home insurance premiums – resist the urge and stay covered!

What a calculator can’t do

Online home insurance calculators can estimate your sum insured each year and when you make changes to your home. However, they generally won’t be able to take into account:

• Special features you may have on your house or property
• If your house is built on a steep slope
• If you have a home that is particularly large or expensive

Calculators do not allow for things that may go along with rebuilding, such as removal costs or building consents you may have during the rebuild.

If your home is unique in its design, construction or location, the extra cost it would take to rebuild may not come up in the calculator. If your sum insured does not cover all your potential costs, you could end up paying for them yourself.

Finally, a home insurance calculator can suggest a higher amount each year for your sum insured, but it will be up to you to increase the figure each year with your insurer. 

Where to go for help

Getting professional help to provide an estimate of what it could cost to rebuild our home, for example from a quantity surveyor, can give us an accurate figure for our sum insured. They will charge a fee for this service, so discuss this with them in advance.

The New Zealand Institute of Quantity Surveyors has listings of firms around the country that can help.

The Insurance Council of New Zealand has more information as well.

The Treasury has published two helpful information sheets:

• Property insurance for standalone houses
• Property insurance for unit titles and multi-unit dwellings