How to Calculate Your Building Sum Insured
What is a commercial building sum insured, and what should it actually be based on?
Quick answerYour sum insured is the figure your policy pays out against, and it should be based on one thing only: what it would genuinely cost today to demolish, redesign, get approved and rebuild your commercial building from scratch. It is not what you paid for the building, and it is not what the building would sell for. Those are two different, unrelated numbers.
If you have read our guides on underinsurance and the co-insurance clause, you already know what goes wrong at claim time when this number is too low. This page is the other half of that conversation: how you actually arrive at the right number in the first place, so Consolidated Insurance Brokers never has to have the first conversation with you after something has burned down.
Getting this number right is entirely within your control, long before any claim. Get it wrong, and it is one of the biggest reasons a commercial building claim pays out less than the owner expected.
What should a genuine rebuild cost figure actually include?
Quick answerA rebuild cost figure covers a lot more than bricks and steel. On top of reconstructing the building itself, it needs to include demolishing and removing what's left, the professional fees to redesign and get the rebuild approved, bringing the new building up to today's codes rather than the codes it was built under, and enough headroom for costs to keep rising while the rebuild actually happens. Leave any of these out and the number is short before a single price moves.
Demolition and debris removal. Before anyone can start rebuilding, someone has to clear what's left of the old building, and that is a real, sometimes substantial cost that has nothing to do with reconstruction. It is easy to leave out entirely if you built your figure around "what it would cost to put the building back" rather than "what it would cost to deal with the site first."
Professional and consultant fees. A rebuild is a new construction project, not a like-for-like replica. It needs an architect or building designer, structural and services engineers, and often geotechnical or other site surveys, all before a builder is engaged. These fees are a genuine percentage of the job, not a rounding error, and owners who insure only the construction cost routinely miss them.
Bringing the building up to today's codes. Building codes and standards move on. A commercial building approved twenty years ago can be rebuilt today only to current fire safety, accessibility, energy efficiency and structural standards, not the standards it was originally built under. That upgrade is a real cost of rebuilding, and a sum insured based on replicating the old building understates it.
Cost escalation during the rebuild itself. A rebuild does not happen the day of the loss. Approvals, design and construction take real time, commonly well over a year for a serious commercial loss, and construction costs keep moving during that window. A sum insured that only reflects today's prices is being asked to fund a rebuild priced later, at tomorrow's costs. We look at exactly how fast those costs have been moving in our guide to underinsurance in commercial buildings.
Australian quantity surveyors commonly note that these four items together, demolition, fees, code upgrades and escalation, can add a further 20 to 30 per cent or more on top of a bare per-square-metre construction estimate. That figure is an industry-consensus range rather than a single published study, so treat it as a reason to get a proper assessment rather than a number to insure to on its own.
Does my commercial building sum insured need to include GST?
Quick answerIt depends on whether you can claim the GST back. If your entity is registered for GST and entitled to claim input tax credits on the property, your sum insured is generally based on the GST-exclusive rebuild cost, because the GST component is something you can recover another way. If you are not entitled to claim it, in full or in part, that GST is a real cost to you and the number needs to account for it. This is exactly the kind of detail that changes with entity type, so it is worth confirming rather than assuming.
A builder's rebuild quote will normally include GST, the same as any other invoice. What happens to that GST at claim time depends on your entitlement to claim it back, which insurers price and settle around. Get your GST status wrong on the paperwork and you can end up short in a way that has nothing to do with your sum insured being too low; it is the same disclosure trap that can affect a claim payout generally, which we cover in full in is commercial property insurance tax deductible.
The working rule is simpler than it sounds. A residential building's sum insured must include GST. A commercial building's sum insured must include GST if the insured entity is not registered for GST. That is why we always ask for your ABN when we set up cover, and why we give this advice as standard. Even then, confirm your position with us when your cover is set up or renewed rather than assuming it, because getting the basis wrong can leave you roughly 10% over-insured or 10% under-insured, and either one is a real cost.
Guess, calculator or valuation: what's the right way to set the number?
Quick answerOwners generally set a sum insured one of three ways: carrying forward a rough figure or last year's number, using an online calculator, or getting a professional valuation. Only the third one is built around your actual building. The first two are both, in different ways, a guess dressed up as a number.
A guess or last year's figure. The most common approach is the least reliable: whatever the number was last year, nudged up a little at renewal. It was probably never based on an actual assessment of your building to begin with, and every year it goes unchecked, it drifts further from reality.
An online calculator. A calculator can only work from what you type in, generally location, floor area and a broad construction type. It cannot see your building's actual condition, its additions, or where it sits against current building codes, and it cannot give you advice about your specific situation. This isn't a hypothetical risk: a published AFCA determination examined a case where a homeowner's sum insured was set using an online calculator, and after a total loss, the calculator's figure fell well short of what it actually cost to rebuild. The finding was blunt: a calculator produces an estimate, not personal advice matched to your building. The same principle applies just as directly to a commercial property. We tell the full story on our desktop building replacement valuation page.
A professional valuation. A qualified valuer or quantity surveyor assessing your building's construction, additions and compliance position (for the report we commission, as a registered valuer's desktop assessment) is the only one of the three that produces a defensible number, the kind that would hold up if your insurer ever tested it against the co-insurance clause. It is also the only one that can capture everything in what a rebuild cost figure needs to include, rather than a broad average.
We cover exactly how that valuation works, and how to get one done, below.
Does indexing my sum insured every year keep it accurate?
Quick answerNo, not on its own. Indexation nudges last year's figure up by a small percentage to keep roughly pace with average cost inflation, but it cannot fix a base figure that was wrong to begin with, and recent commercial construction cost rises have outpaced typical indexation rates. Indexation is a maintenance tool. It is not a substitute for a fresh valuation.
Commercial building costs are still climbing: the Australian Bureau of Statistics recorded non-residential building construction prices still rising 4.3% in the twelve months to the March 2026 quarter, with no clear sign yet of the slowdown residential building costs have shown. If your policy's indexation is running at a lower rate than that, and many are, the gap between your indexed number and the real cost of rebuilding widens every year, quietly, on top of whatever the number already got wrong at the start.
We walk through exactly how far indexation can fall behind real construction cost inflation, with the full working, in underinsurance in commercial buildings. The short version: reset the base to a current, professional figure, then let indexation do the smaller job it is actually suited to.
How do you check your own number, and fix it if it's short?
Quick answerAsk yourself three things: has this figure ever been through an actual professional assessment of your building, rather than just an index applied to an old number? Does it account for demolition, professional fees, code upgrades and escalation, not just construction cost? And is it based on today's costs, not the year you bought or built? If the honest answer to any of those is no, treat the number as unproven until it's checked.
This isn't a lecture and it isn't an emergency. It is simply something worth knowing rather than hoping. So we do not let clients guess it: for commercial building clients, Consolidated Insurance Brokers commissions a desktop building replacement valuation at no cost to you, carried out by a registered valuer, covering every component in this guide, not just the construction cost.
The desktop valuation is commissioned for our purposes as your broker, to inform the advice we give you.
If the valuation finds a gap, we close it at a pace you can manage, with a choice at every step, including where adjusting the excess helps keep a higher, accurate sum insured affordable. Sometimes the honest answer is that your number is already close enough, and we will tell you that too. Either way, you will know, instead of finding out on the day you can least afford a surprise.
Book your desktop building replacement valuation, at no cost to you
FAQ
Is sum insured the same as market value?
No, and treating them as the same is one of the most common and most expensive mistakes in commercial property insurance. Market value is what a buyer would pay for your property, and it includes the land. Sum insured should reflect rebuild cost: what it would take to demolish, redesign, get approved and reconstruct the building alone. In a strong property market, market value can sit well above rebuild cost because of the land underneath it, and insuring to that higher figure just wastes premium. In the other direction, a building bought cheaply years ago can cost far more to rebuild than it would sell for today, because land doesn't burn down. The structure does, and rebuild cost, not market value, is the number that decides your claim.
Should my commercial building sum insured include GST?
It depends on your entitlement to claim input tax credits, which is entity-dependent rather than a single universal answer. We cover the general mechanism above, and the deeper claim-time GST disclosure rules, including what happens if your GST status isn't correctly recorded, in is commercial property insurance tax deductible. If you're unsure which basis applies to your entity, confirm it with us when your sum insured is set, not after a claim.
Should my sum insured include demolition costs?
Yes. Demolition and debris removal are a real, sometimes substantial cost of rebuilding after a serious loss, and they are separate from the cost of the new construction itself. A sum insured based only on "what it would cost to put a similar building back" typically leaves this out entirely. It belongs in the number alongside professional fees, code upgrades and cost escalation, covered in full above.
Know the number, don't guess it
You should not have to hope your sum insured is right. We will put a registered valuer's figure on your building, covering everything this guide walks through, at no cost to you.
Book your desktop building replacement valuation, at no cost to you