The Importance of Adjusting your House Sum Insured
As a homeowner, it's important to regularly review and adjust your home insurance policy to ensure that it provides sufficient coverage for your needs. There are a few key reasons why this is so important:
Default Sums Insureds: Originally when policies swapped from square meter replacement policies to a sum insured basis the insurers set a default rate for the sum insured. The rate is not unique to your property and if you’ve just followed the default you could be significantly underinsured!
Inflation: The cost of building materials and labour can go up over time, and it's important to make sure that your home insurance policy reflects these changes. If you haven't updated your policy in a while, it's possible that it may not provide enough coverage to rebuild your home in the event of a disaster.
Renovations: If you've made renovations or additions to your home, it's important to let your insurance company know. These changes can increase the value of your home and may require you to adjust your policy to provide enough coverage.
But doesn’t the insurer adjust my homes value?
Most insurers use the mechanism of index linking on policies to measure the average change in rebuilding costs. House insurance policies are index linked at renewal to account for increases in rebuilding costs. Inflation on labour, materials and contents has seen the indexing increase to up to 12% in New Zealand but in many cases, this is still not able to keep up with actual cost inflation.
How do you set the right value?
Take Advice! While calculators like CoreLogic’s Sumsure are great for setting a standard property’s sum insured they too can suffer from some of the same issues as the insurer adjusting your sum insured. It’s important to use the right info as part of any calculation but an expert like Construction Cost Consultants to set the right replacement value for your property.