House Insurance: a cautionary tale.

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Forums › Finance and wealth management › House Insurance: a cautionary tale.

Geektastic

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#307104 19-Sep-2023 19:17

We have a pretty high end house insurance policy (for the simple reason it offered the best price/cover ratio when the broker went to market) and one of the benefits of it is that the insurers pay the cost of having professional quantity surveyors inspect the house and calculate accurate rebuild costs. The policy is based on that figure and there is then no limit on rebuild costs if it turns out to be more.

Our policy last year was based partly on what we paid for the house increased by a bit.

This year it was valued as per the policy by their retained surveyors. The rebuild cost was almost double what we had it insured for.

I’ve not spoken to our brokers yet. However, I mention it here because it proved to me that rebuild costs have literally nothing whatsoever to do with market value. We paid barely half of the rebuild cost valuation when we bought the house a year or so ago.

You may want to check your insurance.

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#3129512 19-Sep-2023 20:34

Something I’ve been meaning to do is to go back to the people that actually built our house and ask for a rebuild price, especially when they’re busy filling up the rest of our recently extended street with their newbuilds. . Should be interesting.

You're not on Atlantis anymore, Duncan Idaho.

alasta

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#3129513 19-Sep-2023 20:46

I am on a body corporate committee representing about 80 freehold townhouses. Last year we had rebuild valuations done which resulted in an increase in the sum insured of about 20%. This year I sat down with our insurance broker and he told me that we need to get revaluations done every year as increases of 30% are not uncommon and in some extreme cases it can even be much higher.

I suspect a lot of people are significantly under-insured, either due to ignorance, or the inability to afford sufficient insurance in such a tough market. Don't forget that underlying premiums are increasing significantly, even before you've increased your sum insured.

Geektastic

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#3129538 19-Sep-2023 21:54

alasta:
I am on a body corporate committee representing about 80 freehold townhouses. Last year we had rebuild valuations done which resulted in an increase in the sum insured of about 20%. This year I sat down with our insurance broker and he told me that we need to get revaluations done every year as increases of 30% are not uncommon and in some extreme cases it can even be much higher.

I suspect a lot of people are significantly under-insured, either due to ignorance, or the inability to afford sufficient insurance in such a tough market. Don't forget that underlying premiums are increasing significantly, even before you've increased your sum insured.

Yes indeed they are. Our house insurance excluding contents jumped 11% in a year and that’s based on the original value. It might go up another 10% at least now.

insane

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#3129555 19-Sep-2023 23:51

To the OP.

If the QS has adjusted their numbers by 100% in a year then I'd be getting a second opinion.

Sounds like they are inflating the numbers to pump up your premiums, or just making it up.

Fully agree with the need to review all insurance policies annually though - they are certainly not on your side.

Clima

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#3129558 20-Sep-2023 00:10

Rebuild costs also include cost of demolition. What about accommodation during rebuild?

eracode

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#3129561 20-Sep-2023 05:36

insane: To the OP.

If the QS has adjusted their numbers by 100% in a year then I'd be getting a second opinion.

The QS didn’t double their numbers. The new rebuild figure was double what the OP had the house insured for - which was based on what they had paid for it. This was the first year of QS involvement.

Sometimes I just sit and think. Other times I just sit.

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traderstu

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#3129578 20-Sep-2023 07:32

@Geektastic, as a matter of interest, would you mind running the numbers through the Cordell Calculator. Just wondering if this is a useful tool or not.

Geektastic

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#3129614 20-Sep-2023 08:39

insane: To the OP.

If the QS has adjusted their numbers by 100% in a year then I'd be getting a second opinion.

Sounds like they are inflating the numbers to pump up your premiums, or just making it up.

Fully agree with the need to review all insurance policies annually though - they are certainly not on your side.

No, they haven’t. Last year was the first year we had this house and the insurance value was a guesstimate by me and the broker based on what we paid plus a bit.

This year the QS company did a proper inspection and costing that transpired to be almost double the guesstimate.

Geektastic

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#3129619 20-Sep-2023 08:44

traderstu:
@Geektastic, as a matter of interest, would you mind running the numbers through the Cordell Calculator. Just wondering if this is a useful tool or not.

No problem. Just did that. There’s half a million dollars discrepancy between the two. Cordell is cheaper.

rscole86

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#3129630 20-Sep-2023 09:03

By the sounds of it your broker didn't use Cordell to calculate the rebuild cost, or doesn't understand the construction market. I doubt the costs have doubled in the last twelve months.

Do you have the ability to get your own survey completed? Otherwise this could be a money printing opportunity for the insurer, using their own QS to infuse the costs, resulting in your over insuring. Not suggesting it's happening, but wondering if you've got the ability to contest the findings?

In 2017, when we purchased our property, we were insured for 20.5% more than the purchase price. Both the insurance and mortgage were provided by the same bank.

We're insured for about 16% of the homes.co.nz estimate at the time of the Cordell calculation, in May of this year. Or 20% if you take today's estimated value.

It could well be we're underinsured as well, but we've got a unique situation where part of our home can't be insured as it's not on the plans, so our homes market value is higher than what we'd get in a pay out.

duckDecoy

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#3129770 20-Sep-2023 14:24

In our case we picked a number out of the air (1.5million) and asked our insurer to quote for that as our rebuild limit vs the online calculator which was $400k at the time. The differences was well under $100 in additional premiums, and a valuer wanted $1500 for the valuation. So we went with the $1.5m. The insurer made us confirm multiple times that we understood they won't be building us a $1.5m replacement house, that we understood it will be rebuilt to the existing house value only, and after we repeatedly said yes we understand then they accepted it.

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Geektastic

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#3129854 20-Sep-2023 18:23

rscole86: By the sounds of it your broker didn't use Cordell to calculate the rebuild cost, or doesn't understand the construction market. I doubt the costs have doubled in the last twelve months.

Do you have the ability to get your own survey completed? Otherwise this could be a money printing opportunity for the insurer, using their own QS to infuse the costs, resulting in your over insuring. Not suggesting it's happening, but wondering if you've got the ability to contest the findings?

In 2017, when we purchased our property, we were insured for 20.5% more than the purchase price. Both the insurance and mortgage were provided by the same bank.

We're insured for about 16% of the homes.co.nz estimate at the time of the Cordell calculation, in May of this year. Or 20% if you take today's estimated value.

It could well be we're underinsured as well, but we've got a unique situation where part of our home can't be insured as it's not on the plans, so our homes market value is higher than what we'd get in a pay out.

We don’t really need to challenge it (we could provide an alternative assessment if we wished though) because I suspect they are correct. The number does include our shed/workshop which is 139 square meters as well as the house which is 298 square meters.

I spoke to the broker this morning and she’s forwarded the report to the insurer and we’ll see what they say.

jonb

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#3129912 20-Sep-2023 19:29

I've based my rebuild cost by looking at new house packages and set the value at approx that. Cordell calculator for my home is $1.3 million and have insured for $500,000 I think. Difference mostly due to being made entirely of stone, almost zero chance of it being completely levelled but could not afford to rebuild it if it did..

timmmay

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#3129928 20-Sep-2023 20:32

jonb: I've based my rebuild cost by looking at new house packages and set the value at approx that. Cordell calculator for my home is $1.3 million and have insured for $500,000 I think. Difference mostly due to being made entirely of stone, almost zero chance of it being completely levelled but could not afford to rebuild it if it did..

I suggest you look into whether under-insuring is valid. They might just return your premiums. I suspect you may have to insure for the actual value... but I could be completely wrong. Best call your insurance company to ask.

Geektastic

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#3129932 20-Sep-2023 21:18

jonb: I've based my rebuild cost by looking at new house packages and set the value at approx that. Cordell calculator for my home is $1.3 million and have insured for $500,000 I think. Difference mostly due to being made entirely of stone, almost zero chance of it being completely levelled but could not afford to rebuild it if it did..

Surely the purpose of insurance is that you don’t have to afford it. The insurer does.

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