Ever thought about how much it would cost to rebuild your home or a commercial property in 2023? Let’s just say, it might be more than you think.
Building material and construction prices have hit a 20-year high as a result of the rising inflation rates, labour shortages and supply chain delays. Which is why it is important to review your cover and building sum insured. With the rising costs, your rebuild cost is likely to be greater than what you originally calculated. Which might mean that you will be left to pay the difference between your claim-payout and the actual rebuild cost.
But how much have the costs of building really gone up? Let’s look at some important numbers to understand this.
Both the Cordell Commercial Cost Index (CCCI) and the ABS House Construction Index are keeping track of the building costs in Australia. According to the CCCI, building costs went up by a whopping 24.2% in the last three years. The ABS House Construction index tells us a similar story. It shows costs going up by 20.5% in the past 12 months and by 33.3% in the past three years. This means that a property in 2019 for $1.0 million, would need to be insured today for somewhere between $1.24 and $1.33 million!
Unfortunately it is not as simple as just looking at how much it would cost to rebuild. It is important to consider the cost to clean up if your building was destroyed in a fire (this is called “removal of debris”). For example, if that $1.0 million property was destroyed in a fire, you need more than the $1.33 million insured as you’ll need to clean up the site first (so you need “removal of debris”). The actual value you need to pick will depend on your policy wording. Insurers may either include these costs as extra benefits, give a sublimit, or need the value for removal of debris to be specifically listed.
It is also important to note whether your building is a commercial or residential property. If you are rebuilding a commercial building the GST may need to be deducted from the total. The insurer will only pay the ex-GST values if you are registered for GST.
If you refinanced your building, the bank might have given you a valuation report. However, often this has no bearing on your actual rebuild costs. The bank is focussed on the market value of the property versus the loan to make sure they’re not out of pocket if your building burns down. The ‘minimum insurance requirement’ protects them and not you as it doesn’t account for any rebuilding costs. Furthermore, the bank doesn’t know what policy wording you have and whether you need benefits like removal of debris on top of or included in your sum insured either.
To make sure you are properly covered, you will need a broker who understands property insurance. Unlike most other brokers, we will do a commercial calculator for you as part of a quote as long as you provide us with the full and correct information. We can help you figure out how much it would really cost to rebuild your building and what you need to include in your insurance policy to cover these costs.
No one wants to think about the worst case scenario, but accidents happen. For example, your metal shed with metal frames can buckle under heat if contents catch fire and would need to be demolished. The cost to clean up this mess alone might end up costing almost as much as building that shed three years ago.
Don’t risk it. Talk to our experienced insurance brokers, who know what they’re doing. They can help make sure you have enough insurance to cover the cost to rebuild your building, so you don’t lose your main retirement income or investment. Why pay for insurance at all if it’s not going to rebuild or replace what you had. Stay safe and stay insured!