Danger of Under Insuring

In a New House Insurance post I explained how easy it is to under insure a property so here is an explanation of what can happen with an under insured property.

Let’s you insure your new house for what you paid the builder, say $200,000.

Total Loss

In the case of a total loss, yes, you get $200,000, but you will need to meet demolition costs and all the other issues mentioned in New House Insurance say $300,000.

Partial Loss

But what about if  part of your home is damaged?

Say it would cost $100,000 to repair the damage, but the insurer isn’t going to pay $100,000 to repair the house, – they’ll calculate that you were only 66% insured, and only pay out $66,000. Leaving you to find $34,000.

What can make this worse is that insurers aren’t obliged to pay out the cash! . . .  they may embargo the $66,000 until you’ve come up with the rest of the money.

Major Under Insurance

If you are really under insured there is a risk that the insurer will argue that you’ve deliberately under-insured and your policy is void.


New House Insurance

Your builder has given you a handover date . . .  so you need to organise property insurance to start on that day.

How Much House Insurance Will You Need ?

Well you have only just finished building so isn’t the price you have just paid the right amount?

I think you need to add 30%-50% to the build cost.

Why Do You Need Extra Property Insurance?

Well building on a new development is cheaper and an entirely different proposition to having a house replaced when it is surrounded by other houses.

Here are some of the reasons for extra costs:

  • Demolition and removal of material from the site;
  • Once fences are built around the site and perhaps trees planted on the nature strip builders may consider the site ‘Restricted‘;
  • Gardens, and paths, which may have been excluded from the initial construction cost will have to be replaced;
  • The original builder may not offer the standard house you had previously built meaning architects may need to be engaged. (Even though you had a project house built you may find yourself up for a cost structure of a custom house)
  • Building regulations may change.

All these extras make it important to make sure you don’t under insure.

The costs of possibly over insuring are small, compared with having to deal with the trauma of loosing your home. . . . Then having a bill of tens, or even hundreds of thousands of dollars, to replace the house.

Also see Danger of Under Insuring