Construction costs are skyrocketing: Is your home underinsured?

We’ve seen building costs continue to rise in recent years, even in the face of a cooling property market. In fact, recent figures from property analysts QV revealed that the cost of building a new home in New Zealand’s four largest cities increased an average of 3.5 percent in the year to May 2017. Over the last decade, these building costs have skyrocketed a whopping 25.5 percent!

I think a number of things are responsible for this trend. The costs of labour, building supplies and materials – particularly imported goods – have gone up, while wider economic conditions are generally making things more expensive for New Zealanders.

How might rising construction costs affect your home insurance policy?

 

The risks of an underinsured home

A byproduct of New Zealand’s rising building costs is that it’s becoming increasingly difficult to accurately estimate your sum insured (the maximum amount of money your insurance company will pay out in the event that your house is destroyed or severely damaged).

Why is this an issue?

Well, if you need to make a claim on an underinsured property, you may receive a reduced pay out. Unfortunately, the settlement may not be enough to cover the actual costs of repairing or rebuilding the property, which can create unnecessary financial and emotional stress during an already difficult time.

Despite the importance of calculating rebuild costs, many Kiwis struggle to hit the nail on the head. As many as 75 percent of residential property owners are underinsured, according to figures collated by valuation experts Construction Cost Consultants. Of these underinsured properties, most are underinsured by 25-50 percent.

To avoid becoming a part of this statistic, I urge you to consider reviewing the value of your home.

 

How to work out your sum insured

It’s important to take a holistic approach when calculating your property’s sum insured and try to account for every factor that could influence rebuild costs. As a starting point, I recommend considering:

  • Size of the property, including floor area and number of levels.
  • Type and quality of construction materials.
  • Age and style of the building.
  • Shape and size of the land the property is built on.
  • Presence of other structures such as sheds, carports, pools, retaining walls driveways and more.
  • Whether parts of the property are shared with neighbours.
  • Fees associated with demolition, building consent and so on.

Please note that this is far from an exhaustive list – working out your sum insured is a process unique to your specific property.

With this in mind, be wary of relying on online calculators to estimate your sum insured. While these tools can be useful for establishing a point of reference, there are so many variables to account for that it’s all but impossible to calculate your rebuild costs online with any degree of accuracy.

 

Protecting your home and your family

The best way to get an accurate valuation is to use a professional service. Specialist quantity surveyors or insurance valuers are able to carry out comprehensive site inspections to assess every element of your home and provide you with a reliable and precise rebuild  valuation. Yes, there are some costs involved with the process, but the peace of mind that comes with knowing your home is home is adequately covered in the event of a disaster is worth every cent.

 

Get in touch with the Penberthy team today to review your current level of cover.