House Rebuild Valuation for Insurance

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#875909 12-Aug-2013 15:36

no clue, i figured it was $80 and if I did stuff to the house or the value went up it would be easier. Also what if I went with more expensive carpet/kitchen counter etc.

was just pointing out it was such a low price difference for a very large amount insured difference, so personally I would over insure buy at least $50k (find out the price first of course).

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mattwnz

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#875962 12-Aug-2013 16:00

StarBlazer:
reven: if the house gets destroyed I'll get a much nice house.

But isn't that what has been discussed where that will not be the case. At the end of the day, the insurance company will presumably send round their assessor and will pay up to the amount they believe the rebuild will cost not what you have insured it for. If they think it's going to cost more then tough luck - you will only get the maximum sum insured. A win-win situation for the insurance company and a lose-lose situation for the consumer.

I know you said it was $80 difference but imagine the money they are making multiplying that by 100,000 properties (a number I plucked from the air). It's not right!

EDIT: removed incorrect emphasis.

They should still end up with a more valuable house, as it will be built to higher building standards. So theoretically it could be sold for more, as a new house with double glazing and insulation is more desirable. Although that would be an extreme case if the house is totally replaced.

DS248

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#876173 12-Aug-2013 23:31

minimoke:

...

My approach is simple. Pick a number say $2,500. Multiply it by desired house meterage and then add $50k for demo / ground preparation.

The $2,500 (or whatever) is the number you want to spend on a rebuild in the highly unlikely event you will need to replace. $2,000 will buy you lower quality, $2,500 average quality and $3,000 higher quality. There will be of course a bit of regional variance. No point stressing over $2,400 or $2,500

Meterage is the size of the house you envisage rebuilding – you may not want the same size. If your house is around 180 sqm call it 180. No point stressing over the odd few SQM’s

Chuck in $50k for demo / site works . Add more in if you have challenging ground – like on a hill –call that $80k.

If you get your build value or meterage or demo wrong your just tweak your rebuild budget from the other sums.

So 180 sqm at $2,500 gives you a value of $500,000 total budget. Be prepared to work within that budget.

...

A word of caution:

Replacement insurance cover is based on the actual replacement value of the house insured. You will be paid out based on the value of the house at the time it is damaged/destroyed, not what you think you would like to replace it with.

Even if you nominate a replacement value greater than the actual replacement value, you will only be paid out based on the repair cost up to the actual replacement value. Of course some slight over insurance may be worth it for peace of mind if the additional premium is minimal but you will not get paid more than the actual value.

More importantly, if you insure for a value less than the actual replacement value, be aware that insurer will have the right to apply "average" (and most likely will if it is significantly under insured). That means that even in a partial loss situation, you will only get paid a proportion of the loss. For example, say you insure for only 70% of the actual replacement value and a fire causes say $100,000 damage, then the insurer would only pay $70,000; ie. 70% of the loss. The basis of this is that you have only insured 70% of the value of the property with the insurer and you are therefore deemed to have self-insured the remaining 30%. Consequently the actual loss is split 70:30 between the insurance company and you, as self-insurer.

The above is pretty much standard insurance practice (& not just in NZ). At least for some overseas policies, average may only apply if the cover is less than 80% (?) of the actual value. Payout will still be capped to the sum insured though. The 80% figure was from some years ago. Not certain if it still holds. Also, I do not know whether the same applies for insurers operating in NZ. You will need to check your policy.

One exception would be if you had specifically bought a layered "first loss" insurance cover. However, other than the current EQC cover, which is in effect a 'first loss policy, I doubt that "first loss" cover is available for residential property in NZ (at least through the main residential insurers).

lapimate

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#876192 13-Aug-2013 00:24

DS248: ... More importantly, if you insure for a value less than the actual replacement value, be aware that insurer will have the right to apply "average" (and most likely will if it is significantly under insured). That means that even in a partial loss situation, you will only get paid a proportion of the loss. ... The above is pretty much standard insurance practice (& not just in NZ). ...

To reiterate: it appears NZ domestic house insurance is not permitted to be subject to "average". From http://en.wikipedia.org/wiki/Condition_of_average New Zealand Parliament (1985). "15. Prohibition on inclusion of pro rata condition of average in contract of insurance relating to dwellinghouse"

Are you basing your statement on New Zealand law or on assumption from another jurisdiction? Do you have a reference?

DS248

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#876199 13-Aug-2013 02:03

My apologies. Indeed it was based household covers in other jurisdictions; ie. California ~ mid 1990's & Japan more recently (policies of particular insurers at least). You are correct, the link does indicate that NZ law prohibits pro-rata average for 'dwellinghouse' insurance. Interesting. That does appear to remove some concerns related to underestimating the property value.

Elpie

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#876200 13-Aug-2013 02:32

Thank you for using the Buildings replacement cost calculator.

Based on the information you have provided, the amount required to rebuild your home is:

$871,046 Excluding GST.
$1,001,703 Including GST.

I've been quoted $2,800 for a surveyor to accurately price up the house. I don't have that spare so am trying to calculate things out myself.

All the online calculators have come up with figures between $900k-$1.2 million. A builder has suggested a total replacement could come in considerably higher because of the materials used in the house. The insurance company insists that I must reinsure for replacement of like with like. This is an absolute nonsense!
Firstly, the house is entirely built of cedar and the type of cedar used is no longer available. All the floors are matai. All the internal woodwork is rimu. Apart from the kitchen, bathroom and ensuite, all ceilings are ornate plaster. The molds are still available and I was quoted $10,000 to redo one ceiling back in 2002 when I was considering changing a room - heaven knows what it would cost today! The house has 11 foot ceiling height. Every room has leadlights, several internal doors have bevelled glass as have a number of windows. The timbers alone would cost a small fortune and the ceilings have to be handmade. Nobody in their right mind would ever rebuild a house like this in this same way nowadays.

The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it. They are plain nuts. Nobody would want to replace a period house with a modern reproduction of a period house. This whole thing is insane. Bet I'm not the only one around considering taking the risk of not being insured.

minimoke

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#876445 13-Aug-2013 13:22

The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it.

I wouldn't have thought that likely. The insurance is more likely to pay the sum insured and no more. So if you have a sum insured of $1m and the replacement like for like is $1.2m you are going to be out of pocket if you want an exact replacement. Given you only have $1m to spend you are likely to have to negotiate with the insurer how that money gets spent - which may include a cash settlement.

Since you have some features you want specifically covered you may want to take a list of these with photos and attach to your insurance. If your house is burnt to a crisp with no evidence of a matai floor you will be in for a challenge.

They are plain nuts. Nobody would want to replace a period house with a modern reproduction of a period house.

As insurers are finding with period home owners in Christchurch. You need a very strong constitution if you want to battle insurers.

This whole thing is insane. Bet I'm not the only one around considering taking the risk of not being insured.

I disagree - I think it makes perfect sense. Why should an insurer provide cover for an unquantifiable risk. We are one of the few countries that insures land - now that’s insane and I'm sure we'll see changes over time.

If you want to self insure based on your own risk assessment good on you. If its only because you can't be bothered doing the work up front then the insanity is elsewhere. If you do lose your house (which I hope never happens) don't go bleating and expecting handouts. Though with our governments and soft population you'll get given them regardless. I once thought I’d never experience a house fire – I was wrong there. After E1 I was 100% certain there was no way on earth I would ever suffer any further earthquake damage. Thankfully by E3 the damage had already been done so insurance was no longer an issue – except the bastards are trying to apportion across several events. Assessing risk is a funny old thing

mattwnz

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#876459 13-Aug-2013 13:31

Elpie:
Thank you for using the Buildings replacement cost calculator.

Based on the information you have provided, the amount required to rebuild your home is:

$871,046 Excluding GST.
$1,001,703 Including GST.

I've been quoted $2,800 for a surveyor to accurately price up the house. I don't have that spare so am trying to calculate things out myself.

All the online calculators have come up with figures between $900k-$1.2 million. A builder has suggested a total replacement could come in considerably higher because of the materials used in the house. The insurance company insists that I must reinsure for replacement of like with like. This is an absolute nonsense!
Firstly, the house is entirely built of cedar and the type of cedar used is no longer available. All the floors are matai. All the internal woodwork is rimu. Apart from the kitchen, bathroom and ensuite, all ceilings are ornate plaster. The molds are still available and I was quoted $10,000 to redo one ceiling back in 2002 when I was considering changing a room - heaven knows what it would cost today! The house has 11 foot ceiling height. Every room has leadlights, several internal doors have bevelled glass as have a number of windows. The timbers alone would cost a small fortune and the ceilings have to be handmade. Nobody in their right mind would ever rebuild a house like this in this same way nowadays.

The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it. They are plain nuts. Nobody would want to replace a period house with a modern reproduction of a period house. This whole thing is insane. Bet I'm not the only one around considering taking the risk of not being insured.

There are some things, like rimu that would be expensive to replace, although rimu is now imported so not too hard to source. But there would be some things on your old house that would be far inferior to a new house, such as lack of EQ bracing to current standards, lack of insualtion up to current standards, double glazing etc. New wiring and plumbing, where old houses may be in need or replacement. Let alone all the deferred maintenance that is stored up in most homes. The QV value less the land value is what the government think your house is worth. A registered valuation of the house, and a survey of what it would cost to rebuild is likely to be substantially different. I know it is on a famimly members house. The QV on their house is 850k, a professional RV was in the region of 1.1 + million, and the rebuild cost via the insurance website was over 1.4 million, plus land price, which would take the totalcost value if it was rebuilt to over 1.8 million.
So when people are insuring for a rebuild, unless the house is already new, people are likely going to end up with a far more valuable house. But then again the odds of havign a house fully rebuilt are very low, as most houses can be repaired.
I would shop arounf for another valuer, as it should be a competitive industry.

Elpie

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#876468 13-Aug-2013 13:43

minimoke:

The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it.

I wouldn't have thought that likely. The insurance is more likely to pay the sum insured and no more. So if you have a sum insured of $1m and the replacement like for like is $1.2m you are going to be out of pocket if you want an exact replacement. Given you only have $1m to spend you are likely to have to negotiate with the insurer how that money gets spent - which may include a cash settlement.

They said you can't insure what you don't have. I don't have a modern house and to insure the house as it is requires coverage of all its features. I'm now on the hunt for a more reasonable insurance company.

Just a thought - I can somewhat see the logic in this as repairs or a partial rebuild would have to reinstate features. A whole of house rebuild though is, IMO, a different story - I'd never try to reproduce this house in this era.

mattwnz

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#876508 13-Aug-2013 14:37

Elpie:
minimoke:

The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it.

I wouldn't have thought that likely. The insurance is more likely to pay the sum insured and no more. So if you have a sum insured of $1m and the replacement like for like is $1.2m you are going to be out of pocket if you want an exact replacement. Given you only have $1m to spend you are likely to have to negotiate with the insurer how that money gets spent - which may include a cash settlement.

They said you can't insure what you don't have. I don't have a modern house and to insure the house as it is requires coverage of all its features. I'm now on the hunt for a more reasonable insurance company.

Just a thought - I can somewhat see the logic in this as repairs or a partial rebuild would have to reinstate features. A whole of house rebuild though is, IMO, a different story - I'd never try to reproduce this house in this era.

That is insurance companies for you, they don't like grey areas. The reason why your house was likely built in that way, because it was the cheapest way to build or the workers were trained in building in that way at that particular time. Rimu in those days was used for framing, so was like pine today.

lapimate

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#876770 13-Aug-2013 21:40

Elpie: ... The insurance company told me that if I don't insure the house for replacement of its features then cover can be refused should anything happen to it. ...

On the face of it that may qualify as a back-door attempt to apply ”averaging” (which is not permitted, see above) in an extreme form by imposing a pre-condition. The insurance company may well be in jeopardy of flouting Parliament’s will as expressed in the 1985 legislation mentioned above. Have you considered drawing the attention the CEO of the insurance company in writing to the anti-averaging provisions and asking how their reported comment to you accords with the legislation, with copies to the Insurance Ombudsman, the Commerce Commission & Consumer?
The reason it appears it might be an extreme case of (proposed) “averaging” is because you report the insurance company is not merely saying that you would get only a proportionate share of the value but that the proportion would be zero!

PaulBags

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#876786 13-Aug-2013 22:19

My hope for your sake is that what they really mean is "if [you] don't insure the house for replacement of its features then cover can be refused [for those features] should anything happen to [them].", meaning they'd still replace square metre for square metre, but minus the fancy plastered ceiling, specific timbers, etc.

This would be a much more reasonible stance; and so I'm probably wrong :(.

Elpie

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#876812 14-Aug-2013 00:22

PaulBags: My hope for your sake is that what they really mean is "if [you] don't insure the house for replacement of its features then cover can be refused [for those features] should anything happen to [them].", meaning they'd still replace square metre for square metre, but minus the fancy plastered ceiling, specific timbers, etc.

This would be a much more reasonible stance; and so I'm probably wrong :(.

I suspect you may be wrong :-( If they did that then they would allow us to insure based on nothing more than the size of the house and number of rooms. I don't understand why that isn't an option actually. This insurance change won't work for a lot of people.

mattwnz

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#876814 14-Aug-2013 00:27

Elpie:
PaulBags: My hope for your sake is that what they really mean is "if [you] don't insure the house for replacement of its features then cover can be refused [for those features] should anything happen to [them].", meaning they'd still replace square metre for square metre, but minus the fancy plastered ceiling, specific timbers, etc.

This would be a much more reasonible stance; and so I'm probably wrong :(.

I suspect you may be wrong :-( If they did that then they would allow us to insure based on nothing more than the size of the house and number of rooms. I don't understand why that isn't an option actually. This insurance change won't work for a lot of people.

What disappoints me about this change is a lack of impartial information. The media stories I have read seem to be just as confused as everyone else. But hte old 'replacement' cover they used to offer, would have been a full rebuild to the same standards and construction methods as the original house. But the difference is now they are expecting people to pay often double for that same cover, as rebuilding is so expensive compared to buying an existing house.

Elpie

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#878077 14-Aug-2013 12:54

mattwnz:
Elpie:
PaulBags: My hope for your sake is that what they really mean is "if [you] don't insure the house for replacement of its features then cover can be refused [for those features] should anything happen to [them].", meaning they'd still replace square metre for square metre, but minus the fancy plastered ceiling, specific timbers, etc.

This would be a much more reasonible stance; and so I'm probably wrong :(.

I suspect you may be wrong :-( If they did that then they would allow us to insure based on nothing more than the size of the house and number of rooms. I don't understand why that isn't an option actually. This insurance change won't work for a lot of people.

What disappoints me about this change is a lack of impartial information. The media stories I have read seem to be just as confused as everyone else. But hte old 'replacement' cover they used to offer, would have been a full rebuild to the same standards and construction methods as the original house. But the difference is now they are expecting people to pay often double for that same cover, as rebuilding is so expensive compared to buying an existing house.

The old replacement cover wasn't for replacing at the same standards and construction methods. Most insurance companies had a clause stating that replacement would be using current construction methods. They really couldn't do anything else as new houses must meet the standards of the day which could be vastly different to the building standards in place when a house was built. They also had an "out" by saying that special features would be replaced, "if available" and that they would make "reasonable efforts". This meant, in my case, that if they couldn't source cedar that was hard enough for house building my replacement house would not be built of cedar. Or if matai was unavailable or so highly-priced that building all floors with matai was uneconomic, I wouldn't have matai floors but could expect wooden floors made from a different material. It was all pretty straight-forward and as long as everyone read their policies people knew what to expect.

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