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How Much Should I Insure My House For?

House on a stack of coins

This is a question frequently asked by property owners. It is an important question because there is significant financial risk if you get the answer wrong. Many people do not realise that insurance policies contain standard clauses that limit the amount an insurance company will pay out in the event of a claim if the amount of cover is insufficient to fully cover the cost of re-building. This is referred to as the co-insurance clause.

If for example, you under-insure by say 30% of the total cost to re-build, then the insurance company may pay only 70% of the cost in the event of a total or partial replacement of the house. The balance will have to be met by you. For most property owners this would come as a rude shock.

There are many factors to take into consideration when calculating the replacement insurance amount. The cost to re-build the house is generally the largest cost component, but there are others. They include:

• the cost to demolish and remove the remains of the existing house,
• the cost to level the site ready for re-building,
• the cost of full professional fees for all the consultants,
• local council building approval fees, and
• the cost of inflation during the building approval, design and construction processes.

When considering the re-building costs there are numerous variables to take into account, including:

• Is it a flat or sloping site?
• Are the ground conditions stable or will bored piers or other special foundations be required?
•Is there asbestos within the existing structure, requiring special protective systems during demolition?
• What is the size and layout of the building?
• What is the standard of finishes and fixtures within the building and are those fixtures and fittings currently available, or will alternatives be required?
• What external works exist outside of the building?
• Where is the building located and does the location attract additional builder’s travel and accommodation costs?

It would be ideal if there was a simple formula to provide the answer to all these questions. Unfortunately there is not. All of the above mentioned factors and many others have a bearing on the final cost. There are online calculators which attempt to provide an easy answer, however, as we have pointed out previously, they are fraught with danger and should not be relied upon.

If you need to insure your house, the best advice I can give is to engage a qualified and experienced quantity surveyor to prepare a professionally prepared insurance replacement valuation.

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