What this calculator does
The sum insured on a home policy is not its market value. It is what rebuilding would cost, and the two numbers are unrelated in a way that catches people out in both directions. Land makes up much of a city property's price and is not insured at all, while a rural property can cost more to rebuild than it would ever sell for.
The parts that get left out are the ones that matter. Demolishing and clearing the site, the architect and engineer, council approvals, and the fact that building costs will have moved by the time the rebuild finishes all have to be inside the number. On the figures here they add $163,000 to a $504,000 house.
The formula
Start with floor area times a build rate for your area and standard of finish. Add outbuildings, paving, fences and landscaping, which are rarely in a per-square-metre rate. Apply demolition and professional fees as percentages of that subtotal, then add an allowance for cost rises between now and the end of the rebuild, since a policy written today may be claimed on in two years and the rebuild itself takes months more.
| Term | Meaning |
|---|---|
| Rebuild cost | The cost of reinstating the building. Also called reinstatement or replacement cost. |
| Market value | What the property would sell for, including land. Not what you insure. |
| Build rate | Cost per square metre for your region and finish. A one-off rebuild costs more per metre than a volume build. |
| Cost rise allowance | A margin for building cost inflation between writing the policy and finishing the rebuild. |
The inputs explained
| Field | What to enter |
|---|---|
| Floor area (m²) | Total floor area under roof, including the garage if it is attached. |
| Build rate ($/m²) | Build rate per square metre. Get a local figure rather than a national average, and pick one for a single rebuild rather than for a new estate. |
| Outbuildings, paving, fences, landscaping ($) | Sheds, carports, driveways, fences, retaining walls, pools and landscaping. These are commonly forgotten and are rarely cheap. |
| Demolition and site clearance (% of build) | Demolition, removal and site clearance, as a percentage. A damaged house has to be taken away before anything is built. |
| Professional fees (% of build) | Architect, engineer, surveyor, council fees and certification. |
| Allowance for cost rises during the rebuild (%) | Allowance for building costs rising between now and completion. Policies are usually annual but a rebuild can take well over a year. |
When to use it
Checking an existing sum insured
Work out the figure from scratch and compare it with the sum insured on your renewal. A gap matters more than it looks, because an underinsured claim is reduced rather than simply capped, as the coinsurance penalty page shows.
Insuring an older or unusual home
Period detail, heritage requirements and difficult access all raise the build rate well above a standard figure. Enter a rate that reflects rebuilding that house rather than a modern equivalent of the same size.
Understanding why it differs from market value
Set the outbuildings to zero and look at the house-alone figure. The gap between that and what you would sell for is almost entirely land, which no policy covers because it does not burn down.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does the build rate change the sum insured?
Only the build rate changes.
| Build rate | Sum insured | Rebuild of the house alone | All-in cost per square metre |
|---|---|---|---|
| $2,000/m² | $525,690.00 | $360,000.00 | $2,920.50 |
| $2,400/m² | $619,146.00 | $432,000.00 | $3,439.70 |
| $2,800/m² | $712,602.00 | $504,000.00 | $3,958.90 |
| $3,400/m² | $852,786.00 | $612,000.00 | $4,737.70 |
| $4,000/m² | $992,970.00 | $720,000.00 | $5,516.50 |
Does a bigger house cost proportionally more?
Only the floor area changes. The outbuildings stay the same.
| Floor area | Sum insured | Rebuild of the house alone | All-in cost per square metre |
|---|---|---|---|
| 100 m² | $421,850.00 | $280,000.00 | $4,218.50 |
| 140 m² | $567,226.00 | $392,000.00 | $4,051.61 |
| 180 m² | $712,602.00 | $504,000.00 | $3,958.90 |
| 250 m² | $967,010.00 | $700,000.00 | $3,868.04 |
| 350 m² | $1,330,450.00 | $980,000.00 | $3,801.29 |
Questions
Why is the sum insured not the market value?
Because you are insuring the building, not the land. In a city the land is often most of the price and cannot be destroyed, so the rebuild cost is lower. In a remote area the reverse can be true, and the rebuild costs more than the property would sell for.
What happens if I am underinsured?
Most policies reduce the claim proportionally rather than just capping it, which means a partial loss is also underpaid. The coinsurance penalty page works out by how much.
Does my policy index the sum insured automatically?
Many do, by a general inflation figure. Building costs have often moved faster than general inflation, so automatic indexation is not a guarantee that the figure has kept up.
Should I include the pool and the fences?
Yes, if the policy covers them, and check whether it does. They are frequently excluded from a per-square-metre rate and frequently forgotten, and together they can be a sixth of the total.
Is this accurate enough to rely on?
It is a planning estimate. For a property of any complexity a quantity surveyor can produce a proper replacement cost assessment, and some insurers will accept or require one.
For what underinsurance costs at claim time, see coinsurance penalty. For the cover that sits above your policy limits there is umbrella coverage gap, and deductible break-even covers the excess.