Why you should review your sum insured today

So, you’ve got the property, you’ve got the tenant and you’ve got appropriate landlord insurance cover. No need to do anything else, right?  Unfortunately, that’s not the case…

One major misconception with insurance, and particularly building insurance, is that you take out a policy and don’t have to think about it until you need to make a claim. In reality though, it’s crucial you review the sum insured on your policy regularly, and we’ll tell you why below.

First, what exactly is a sum insured?

The sum insured is the most an insurer will pay out for one event of a covered loss. In terms of landlord insurance, the sum insured should cover the cost to fully replace your property and/or contents if something happens. 

Depending on your policy, there may be a ‘standard’ sum insured. Other times, it’s up to the policyholder to nominate the amount they want the insurance company to cover. Either way, you’ll need to make sure there are adequate building sums insured and/or contents sums insured specified in the policy.

How does one determine the sum insured?

It’s not the insurer’s responsibility to make sure the sums are right.

A quantity surveyor is best placed to provide accurate costings, but there are also online calculators that can help determine the right level of building and contents sums insured.

Tip: The building sum insured is based on the cost of replacing the building structure itself, as well as its fixtures (such as light fixtures, built-in wardrobes, ceiling fans, central heating/cooling systems, built-in shelving units and cabinets, and bathroom fittings, like taps and showers) and other features (such as sheds, decking, driveways, pools and fencing). It does not include the value of the land the property sits on.

Why should it be reviewed periodically?

Things change. The sum insured you nominate when you apply for cover may not be sufficient upon renewal. The cost to rebuild or replace your property may be higher, or maybe you have renovated the property, adding extra value to the section. Take the time to re-assess the sums insured and be sure that they reflect current replacement costs.

Let’s dig deeper into rebuilding costs…

It’s no revelation that the cost of living – and therefore inflation (the price of goods and services in an economy) – is rising at an incredible rate. Building costs are not immune. In fact, they are at a record high, too.

The major reason for this is that demand for construction is outweighing the available tradespeople and materials. As a result, the cost of both is higher and the cost to build or repair a property is higher, too.

In addition, COVID-19, recent flooding disasters and even international events like the war in the Ukraine have had a big impact on supply chains. All kinds of materials and goods have been affected, making many harder to get, take longer to be delivered and cost more. This, along with inflation, means the materials to rebuild a property (timber, steel, cement) and the goods to furnish it (white goods, cabinets) are in short supply and costing more. 

This is why it is important that your sums insured reflect these new replacement cost.

What happens if the sum insured is wrong?

You run the risk of being under-insured or over-insured.

• Under-insured – if you nominate a sum insured that is insufficient to cover the loss (e.g. you nominate the replacement value of your property to be $200,000 when it is really $300,000), then you are under-insured and will be left to find the money to make up the shortfall (in this case, $100,000).
• Over-insured – nominating a sum insured that overinflates the replacement value is problematic too. If a claim is made, most insurers will only reimburse the landlord for the actual cost of the loss they have suffered. By being over-insured, the landlord is paying a higher premium than they need to.

Automatic updating of sums insured

EBM RentCover automatically increases the building sum insured by a small, fixed percentage on renewal (not all insurance providers do this, so be sure to check yours). While this provides some additional level of protection against under-insurance, there is no guarantee this will be sufficient to cover your costs.

What now?

A good habit to get into is calling your insurer every 12 months to discuss your sum insured and make any necessary changes, according to what’s going on around you. Because it’s one thing to find that your takeaway coffee costs $1 more than you thought, but quite another to find you’ve underestimated the replacement value of your investment property by $100,000.

The idea of being out of pocket on your investment property, is pretty scary. And we know that calculating a sum insured can be stressful, particularly if you’re new to this. If you’d like guidance, you can always chat to a member of our Expert Care team – 1800 661 662.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions.