How to Calculate Your Building Sum Insured

What is a commercial building sum insured, and what should it actually be based on?

That rebuild cost is the full price at trade rates, from the slab up, with the fees and approvals a rebuild needs. If the figure is short, the insurer can cut what your commercial property insurance pays, and you fund the gap.

What should a genuine rebuild cost figure actually include?

Demolition and debris removal. Clearing what's left of the old building is a real, sometimes substantial cost separate from reconstruction. On most of the policies we place, debris removal is paid on top of the building limit. On some it comes out of the same limit, so a heavy demolition competes with the rebuild for the same money.

Professional and consultant fees. A rebuild needs an architect or building designer, structural and services engineers, and often geotechnical or other site surveys, all before a builder is engaged. Council and approval costs add to the bill. On the policies we place, architect and engineer fees usually come out of the building sum insured, or out of the extra most of them pay above it. So they belong in your sum insured.

Depending on what the policy pays for debris removal and professional fees, choosing the building figure alone could leave the sum insured 20 to 40 per cent below the amount needed to rebuild.

Bringing the building up to today's codes. A commercial building approved twenty years ago can be rebuilt today only to current fire safety, accessibility, energy efficiency, and structural standards. On the policies we arrange, the co-insurance clause (the condition that cuts a claim when the sum insured is short) does not scale that extra cost down. Your schedule shows whether it is paid on top of your limit or from what is left of it.

Your own fixtures, and the tenant's fit-out. On the wordings we place, your building sum insured also takes in the owner's own fixtures and fittings, floor coverings, plant and services inside the building. The lease helps establish who is responsible for insuring the fit-out; the relevant policy wording determines how the cover responds. You can ask us to go through the insurance clauses of your lease with you, so your sum insured matches it.

Cost escalation during the rebuild itself. Costs keep moving, so a sum insured at today's prices funds a rebuild priced later. On the policies we arrange, the extra paid for rising costs applies after a declared catastrophe, so ordinary rises during a rebuild generally need to sit inside your sum insured.

How long a rebuild takes also decides how long your rent cover needs to run. We recommend at least 18 months, and often 24 or 36 depending on your situation. The period is your call.

How does GST affect a claim?

If you can claim back only part of the GST, tell them the share you can claim. If you do not tell them, or give the wrong figure, the policy may not pay the GST that falls due on the settlement.

If your entity is not registered for GST, some of the wordings we place pay the GST on top of the claim. Getting the GST basis of your sum insured wrong can leave you roughly 10 per cent over- or under-insured, so ask us which applies to you.

Guess, calculator or valuation: what's the right way to set the number?

A guess or last year's figure. A number nudged up a little at renewal is the least reliable of the four. An annual increase cannot tell you whether the starting figure was right.

An online calculator. A calculator works only from what you type in: location, floor area, and a broad construction type. It cannot see your building's condition, additions, or compliance with current codes, and it cannot give you advice about your situation. Our page on the estimate shows how far short a calculator figure can fall.

An estimate through us. It's a desktop building replacement estimate, so it's worked out from aerial and street imagery rather than a site visit. We commission it for our purposes as your broker, to inform the advice we give you.

The estimate considers the rebuilding costs described above. Aerial and street imagery cannot show every feature of your building, so tell us about anything the assessment may have missed.

A professional valuation. A qualified valuer or quantity surveyor works the figure out from your actual building. That helps you choose your sum insured, and that choice is what the co-insurance clause tests at claim time. We can also arrange an on-site valuation instead of a desktop building replacement estimate, but that's a service you pay for.

Does indexing my sum insured every year keep it accurate?

Across the renewals we are shown, the premium is commonly up 15 to 20 per cent while the insurer has indexed the sum insured by only 5 to 10 per cent. Our guides show how fast building costs have climbed and how far an indexed figure falls behind.

In our experience nothing on the insurer's side catches a short figure. An underwriter is not a valuer, and advising you on the number is not their role. So a figure can renew year after year without anyone outside your own business looking at it.

In our experience, the great majority of commercial landlords we see are underinsured, on gross and net leases alike (whether the tenant pays the outgoings or you do), because they do not know what a rebuild costs now.

When an index is enough, and when it is not. Where we have good reason to think a building is adequately insured, we can lift its sum insured at renewal by the Australian Bureau of Statistics' annual figure for non-residential building construction across Australia: 4.4% for the year to June 2026. Where the number looks light, or nobody has measured it in years, an index is the wrong tool, and an estimate is the better place to start.

How do you check your own number, and fix it if it's short?

From the year of your last valuation, the Australian Bureau of Statistics figure shows how far building costs have risen since.

What happens after an estimate depends on what it shows and what you want from it. If your figure looks right, we may simply say so. If you want to check the inputs yourself, we'll send you the calculation.

If the estimate finds a gap, you choose how fast to close it. We can price your cover at more than one sum insured, and with a higher excess, which can help keep the higher figure affordable, so you see what each choice costs. Nothing changes on your policy until you tell us to go ahead.

Where a tenant funds the building premium through the outgoings, the tenant has a reason to want it cheaper. Some ask for the building to be insured for less. If the building burns, the shortfall falls on you. If the full figure is a stretch this year, ask about timing the increase to your next rent review.

You do not need to wait until renewal to raise a shortfall. You can ask to increase your building figure during the year, and we can put the change to the insurer. If the insurer agrees, it sets any extra premium on its own terms. Most of the policies we place also carry capital additions cover: some automatic cover for new work above the sum insured, up to a limit in the policy.

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