14/08/2026
๐ก๐ผ๐บ๐ถ๐ป๐ฎ๐๐ถ๐ป๐ด ๐๐ต๐ฒ ๐ฅ๐ถ๐ด๐ต๐ ๐ฆ๐๐บ ๐๐ป๐๐๐ฟ๐ฒ๐ฑ ๐ณ๐ผ๐ฟ ๐ฌ๐ผ๐๐ฟ ๐ฃ๐ฟ๐ผ๐ฝ๐ฒ๐ฟ๐๐
If you own a home, investment property or other property that requires building insurance, you will generally be asked to nominate a building sum insured.
Getting this figure right is important. If the sum insured is too low, you may not have enough insurance to fully rebuild your property following a major loss. If it is too high, you may pay a higher premium without necessarily receiving any additional benefit.
What is a building sum insured?
The building sum insured is the maximum amount your insurer will generally pay under your policy to repair or rebuild the insured buildings following an insured event. Importantly, the building sum insured does not include the value of the land. For example, a property may have a market value of $1 million, but this does not mean the building needs to be insured for $1 million. The market value includes the land, location and other factors. Your building sum insured should instead reflect the cost to rebuild the structures and associated improvements.
Why is getting the right amount important?
Consider a property with a building sum insured of $500,000 that is destroyed by fire. If the actual cost to rebuild the property is $750,000, there may be a significant shortfall.
The important point is that the insurer does not generally pay based on the propertyโs market value. The amount of cover and how claims are settled will depend on the individual policy and its terms. This is why it is important to regularly review your sum insured and make sure it remains appropriate.
What should you consider when calculating your sum insured?
Your building sum insured should generally take into account the cost of completely rebuilding the insured structures to a similar standard, including the buildingโs fixtures and permanent improvements.
Depending on your property and policy, this may include:
โข The main dwelling or other buildings
โข Garages and carports
โข Sheds and other outbuildings
โข Kitchens, bathrooms and built-in cabinetry
โข Built-in wardrobes and shelving
โข Light fittings and ceiling fans
โข Decking and verandahs
โข Fencing and gates
โข Swimming pools
โข Driveways and other permanent improvements
โข Solar panels and other permanently installed equipment
You should also consider the additional costs associated with rebuilding, including demolition and removal of debris, professional fees, architects, engineers, surveyors, permits, approvals and other construction-related costs. The cost of rebuilding can be considerably higher than simply estimating the propertyโs current construction value, particularly following a major disaster when building materials and labour may be in high demand.
What about carpets, curtains and contents?
Not everything inside or around your property will necessarily be included in the building sum insured. Items such as carpets, curtains, blinds, appliances, furniture and other contents may be covered under a separate contents section of your policy, depending on your insurer and the terms of the policy. It is important to check your Product Disclosure Statement (PDS) to understand exactly what your policy covers and whether you need separate contents cover.
Under-insurance
Under-insurance occurs when the amount you have nominated is less than the actual cost to repair or rebuild your property. For example, if you nominate a building sum insured of $600,000 but the actual cost to rebuild is $800,000, you could potentially face a significant financial shortfall depending on the terms of your policy. This is one of the biggest risks of not regularly reviewing your insurance cover.
Over-insurance
It is also possible to nominate a sum insured that is higher than the actual replacement cost.
While having a higher figure may appear to provide greater protection, insurance is generally designed to cover your actual loss, rather than provide you with a cash payment simply because you nominated a higher amount. A higher sum insured can also result in you paying a higher insurance premium than necessary.
How do you work out the right amount?
The most accurate way to determine the replacement cost of a building is to engage a quantity surveyor or suitably qualified building professional to provide an assessment. There are also building insurance calculators available online that can provide an estimate based on factors such as the size, construction, age and location of the property. As property managers and real estate professionals, we are not qualified to determine the appropriate insurance sum insured for your property. The responsibility for selecting and maintaining an appropriate level of cover rests with the property owner.
Donโt rely solely on property value
One of the most common mistakes is using the propertyโs market value as the building sum insured. The market value includes the land and can be influenced by location, demand and other market conditions. The building sum insured should instead be based on the estimated cost to rebuild the insured structures and associated improvements.
Review your sum insured regularly
Your insurance needs can change over time. You should review your building sum insured at least annually and whenever there are significant changes to the property, including:
โข Renovations or extensions
โข Adding a garage, shed, pool or other structure
โข Significant improvements or upgrades
โข Changes in construction costs
โข Changes to the propertyโs use
Some insurers automatically increase the sum insured at renewal through indexation. While this can help account for increasing costs, it should not be relied upon as a substitute for reviewing whether your cover remains adequate.
The bottom line
The right building sum insured is not necessarily the propertyโs market value. It should be an informed estimate of what it would cost to completely repair or rebuild the insured property and associated improvements following a major loss, including the additional costs involved in the rebuilding process.
Taking the time to review your sum insured each year can help reduce the risk of being significantly under-insured when you need your insurance most. If you are unsure whether your current sum insured is adequate, speak with your insurer, insurance broker or a qualified building professional and review your policyโs PDS to understand exactly what is covered.
Please note that this is general advice and should not be taken as financial advice or fact. Please make your own investigations with insurance professionals regarding the above information regarding your house insurance.
