House insurance in New Zealand is largely based on a Total Sum Insured system, where you and your insurance company agree on the sum insured, and the company will rebuild your house up to that limit if it is totally destroyed. Any costs that exceed the nominated amount are the responsibility of the policy holder. Most insurance companies here adopted Total Sum Insured policies in 2013, following the Christchurch quakes.
A Total Sum Insured policy puts the onus on you as the homeowner to come up with a reinstatement value for your home using modern equivalent materials. The challenge lies in figuring out an accurate cost to replace your home. Too high and you pay higher premiums for insurance you don’t need; too low and the settlement will not be enough to cover the rebuild.
To work out the estimated cost of rebuilding your home, you need to figure out the cost per square metre to build on its current site based on the present size, standard and type of construction. You will need to include any other permanent structures such as decks, driveways, sheds, garages and fencing, and non-engineered retaining walls.
Other costs to factor into your valuation are the demolition and removal of debris, site preparation, professional fees and compliance costs, and inflation. You may also want to include temporary accommodation for the household during the rebuild.
In Otago there are also things like sub-ground preparation that need to be factored in, especially in low lying, flood prone or coastal situations. Read more about sub-ground costs
Additional features or modifications you have made will increase the rebuild costs – you may need to itemise these individually to have them included in your policy. It pays to check with your insurer what is covered as part of the overall house structure and what needs to be listed. Your valuer will be able to advise you on the types of things that are considered additional and need to be listed as special features.
As the price of labour and building materials will increase over time, you need to factor inflation into your estimated value. Changes in building regulations and other legislation may also affect the cost to rebuild your home, depending on its age. It is recommended you review the Total Sum Insured on your insurance policy annually when it comes up for renewal, and have it professionally revalued periodically to make sure you are still in line with current costs. A lot can change in a few years.
Many people try to use their rateable value to insure their homes. This usually results in paying too much for their insurance or too little. Rateable value includes the land value, which cannot be insured. It is also important to note that the value insured does not necessarily equal the price paid out – only the maximum an insurer will pay based on real costs.
Here is a list of things you cannot base your total sum insured on:
Land is not insurable under a Total Sum Insured policy.
Value calculators are online tools designed for working out house values. By inputting details about your house and other aspects of your property, like floor area, age, materials used, geographical location, etc. it produces an estimate for rebuilding. More advanced versions can factor in some inflation, all are limited by a set parameter of factors; they will not allow for every contingency or variation, or be able to weigh up the unique characteristics of your home to procure the value.
A registered valuer will assess your property for its individual characteristics as well as the size, style and materials used, and other permanent features. We draw from our extensive knowledge of build costs relating to actual contract prices, and allow for additional costs like consents, demolition and removal of debris, site preparation, lead time and reconstruction timeframe, and inflation of costs during the policy period, based on historic and trending data.
Telfer Young Otago has a team of highly skilled registered valuers who provide independent valuations of residential and commercial properties. By talking to the client, visiting the property and completing a detailed inspection, measure and cost analysis, we draw up a full report that can be used to support the homeowner’s insurance application for reaching a fixed sum they are happy with and that the insurance company will agree to.
We can also advise you on whether you need to specify for Reinstatement, Replication or Replacement of your home. Read our article on understanding the three definitions of rebuilding.