A new kitchen, an additional bedroom or a major home upgrade can transform the way you live. Renovations can create more space, improve comfort and add considerable value to your property.
However, once the builders have packed up and you are enjoying the finished result, there is another important job that should not be overlooked: reviewing your home’s sum insured.
Your sum insured is the maximum amount your insurer may pay to rebuild or repair your home following an insured event, subject to the terms, conditions, limits and exclusions of your policy. If you have made significant improvements since your insurance was last reviewed, your existing sum insured may no longer reflect the cost of rebuilding your upgraded home.
Renovations Can Change the Rebuilding Cost
Even a renovation that does not increase the physical size of your home can increase its rebuilding cost.
A new kitchen may include custom cabinetry, stone benchtops, premium appliances, upgraded lighting and new plumbing or electrical work. A bathroom renovation might feature floor-to-ceiling tiles, underfloor heating or higher-quality fittings. Adding a bedroom, ensuite, outdoor entertaining area, garage, studio or home office can increase both the size and complexity of the property.
It is important to remember that the cost of a renovation is not necessarily the same as the amount that should be added to your sum insured. Insurance generally considers what it may cost to rebuild the entire home after a major loss, rather than simply repeating the original renovation project.
Rebuilding costs can include demolition, debris removal, labour, building materials, professional fees, permits, site access, compliance with current building standards and other expenses. The cost of rebuilding after a widespread event, such as a bushfire or major storm, may also be affected by increased demand for builders and materials.
Market Value and Rebuilding Cost Are Different
Homeowners sometimes assume their property’s market value provides an appropriate guide to the amount of insurance they need. However, market value and rebuilding cost are two different things.
The market value of a property includes the location and the value of the land. Home insurance generally focuses on the cost of repairing or rebuilding the insured structures. A home in a highly desirable suburb may have a market value well above its rebuilding cost, while a large or architecturally complex home in another location may cost more to rebuild than expected.
Online building calculators can provide a useful starting point, but they may not capture every detail of your property. Custom designs, sloping land, difficult site access, retaining walls, premium finishes, heritage features and separate structures may all affect the amount required.
How Much Is Enough?
There is no single figure that is right for every homeowner. An appropriate sum insured should reflect the individual construction, size, finishes, location and features of your home.
After completing significant work, gather your building contracts, plans, invoices and a summary of the improvements. These documents can help explain what has changed and may assist with estimating the updated rebuilding cost.
It is also worth reviewing your contents insurance. Renovations are often followed by purchases such as new furniture, televisions, appliances, artwork or outdoor equipment. These items may increase the overall value of the belongings kept inside your home.
Do not wait until your annual renewal if you have completed a substantial renovation or extension. Contact your insurer or insurance broker or adviser as soon as possible, particularly if the structure, use, security or occupancy of the property has changed.
Make Insurance Part of the Renovation
Reviewing your sum insured should become a standard final step in every major home improvement project. An insurance broker or adviser can help you understand the difference between market value and rebuilding cost, identify areas that may have been overlooked and discuss whether your current cover remains suitable.
Your beautifully renovated home represents a significant investment. Taking the time to review your insurance can help ensure the protection surrounding that investment has been upgraded too.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
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