Insured for $500k? Why Rebuilding Your Home Now Costs $750k
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| Insured for $500k? |
You bought your home insurance policy five years ago. You set the "Sum Insured" (the maximum payout) at $500,000, thinking that was plenty to rebuild your house if it burned down.
You just kept auto-renewing the policy. Then, disaster strikes. A fire destroys your home.
You call a builder for a quote. He looks at the plans and says: "To rebuild this today? That will be $750,000, mate."
You are $250,000 short. The insurer pays you the $500k limit, and you are left with a half-built house or a massive debt. This is the crisis of Underinsurance.
Why Your Old Policy is Worthless (The "7-Star" Shock)
The Australian construction industry has seen unprecedented cost increases. But it's not just about the price of timber—it's about the Law.
Recent updates to the National Construction Code (NCC) now require new homes to meet a 7-Star Energy Rating.
- The Trap: Your old house likely had single-glazed windows and basic insulation.
- The Reality: If you rebuild in 2026, you represent "New Construction." You legally MUST install double-glazed windows, heavy insulation, and energy-efficient systems. This alone adds $30,000 - $50,000 to the bill, which your old policy didn't account for.
Purchase Price vs. Rebuilding Cost
A common mistake is insuring your home for its Market Value (what you bought it for). This is wrong.
⚠️ Land Does Not Burn
If you bought a house for $1 million, the land might be worth $600,000 and the house $400,000.
- Don't insure for $1m: You waste money on premiums covering the land.
- Don't insure for $400k (based on old value): Rebuilding a modern home to 2026 standards often costs MORE than the depreciated value of the old one.
Sum Insured vs. Total Replacement Cover
There are two ways insurers pay out. Check your PDS immediately.
| Type | How It Works | Risk Level |
|---|---|---|
| Sum Insured | Pays up to a fixed limit (e.g., $500k). If costs rise, you pay the gap. | High Risk (if calculated poorly) |
| Total Replacement | Pays whatever it costs to rebuild the home to the same standard, no matter the inflation. | Low Risk (Best coverage, but rare & expensive) |
Note: Very few insurers (like AAMI or RACV with premium options) offer true Total Replacement. Most use "Sum Insured".
The "Safety Net" Buffer (GSI)
If you can't get Total Replacement cover, look for a policy that includes a "Safety Net" (often called Sum Insured Safeguard).
This adds an extra buffer (usually 20% to 30%) on top of your Sum Insured if a catastrophe occurs. For example, if you are insured for $500k, a 30% safety net extends coverage to $650k. This is a lifesaver during inflation spikes.
How to Calculate the Real Cost
Do not guess. Do not ask your neighbour.
- Use a Calculator: Use the Cordell Sum Sure calculator (the industry standard). It estimates costs based on your specific address and floor area.
- Add Demolition Costs: Clearing the debris of a burnt house (especially with asbestos) can cost $30,000 - $60,000. Is this included in your sum?
- Add Professional Fees: Architects, surveyors, and council permits add another 15% to the total bill.
Chief Editor’s Verdict
Auto-renewal is the enemy of protection.
Log in to your insurer's portal today. Recalculate your Sum Insured to match 2026 construction rates and 7-Star energy standards. Paying an extra $60 a year in premiums is infinitely better than being $250,000 short when you need a roof over your head.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial or insurance advice. Building codes and construction costs vary by state and location. Always use a professional calculator (like Cordell Sum Sure) and read the Product Disclosure Statement (PDS) to ensure your policy meets your specific needs.
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