Building Insurance Cost

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What is building insurance?

How much should I insure my house for?

What are building replacement costs?

How can I calculate my building replacement costs?

What could impact building replacement costs?

What happens if I underinsure my property?

How often should I update my insurance amount?

Building insurance doesn’t have to cost an arm and a leg

Long story short

Protect one of your biggest investments

Your home isn’t just a roof over your head – it’s probably your largest asset and your sacred space. Building insurance safeguards your safe haven from unexpected disasters.

The devil is in the details

Pests, deliberate damage, and gradual events like subsidence (we’ll explain that later) are usually off the table. Read your policy’s product disclosure statement or PDS to understand your coverage.

Insure for replacement, not market value

Your building replacement coverage should match what it costs to rebuild your home and any structural improvements on the site – including materials, labour, and compliance with updated building codes.

Underinsuring could leave you footing the bill.

If your coverage falls short, you might need to pay some of the rebuild costs yourself. Tempting as it is, don’t skimp to save on premiums.

Regularly review and update your coverage.

Renovations and rising construction costs can affect replacement costs. Keep your policy up to date to avoid surprises.

What is building insurance?  

Think of building insurance as your home’s safety net. It’s there to protect the structure of your house from disasters like storms, fires, and floods – or the totally random, like someone driving a car straight into your lounge (hey, it’s happened before).

How much should I insure my house for?

If we’re talking about building replacement, here’s the short answer: Enough to cover the cost of rebuilding your home.  

But note that the replacement cost isn’t always the same as your home’s market value. It should include everything required to rebuild your home from scratch, and that includes your property’s materials, labour costs, and demolition.  

Compliance with updated building codes, building permits, council fees, inflation on both materials and labour, and removal of debris or hazardous materials are all included.  

What are building replacement costs?

To be honest, the fact it’s called building replacement cost can be confusing.  It may be simpler to think of it instead as the cost to rebuild your home.  When taking out building insurance cover, you need to think about one crucial thing: how much it would take to rebuild your home if something unfortunate (or an ‘insured event’ in insurance lingo) was to happen.   

The building replacement cost should also cover replacing the property’s fixtures, finishes, and structures. Without an accurate estimate of how much will be paid for both materials and labour, you could be left paying out of pocket if the worst happens.  

The good news is you don’t have to add the value of the land where the property sits on. Building replacement cost only includes the actual ‘building’. 

How can I calculate my building replacement costs?

Unsure how to work out your building’s replacement cost? Here’s how you can get started:

Use online calculators

Many insurers offer free building replacement cost calculators. These tools often ask for details like your property’s size, location, construction materials, and standout features (e.g. a pool or solar panels) to estimate replacement costs. 

Hire a quantity surveyor 

For the most accurate estimate, consider hiring a professional quantity surveyor. They specialise in assessing and calculating building costs. 

Check with a builder or architect

If you know a builder or architect, it’s worth getting their opinion as well. They may provide a realistic estimate for reconstruction costs based on industry benchmarks and current material prices.  

What could impact building replacement costs?

Several factors affect how much it costs to rebuild your house, and these can directly impact your insurance premiums. Here’s what to watch for: 

• Location: Are you in a bushfire-prone area? A floodplain? Hazards like these increase costs and premiums. Plus, whether you’re in the metropolitan or regional area can affect labour and material prices.
• Size and type of dwelling: Larger homes obviously cost more to rebuild than smaller ones. And the construction style – single-story vs multi-story, heritage v. modern – can make a big difference.
• Quality of materials: If you’ve got fine taste and have upgraded your property with higher-quality finishes, designer fixtures, an infinity pool, and solar panels, then you can expect a higher cost to rebuild. 
• Land slope: If your land isn’t perfectly flat, building replacement costs can increase due to the need for more extensive foundation work. 

Helpful tip:

When estimating replacement costs, don’t skimp on the details! Consider things like inflation, updated building codes, and even costs for professional services (think architects and engineers). Avoid underinsuring your property as it might cost more headaches (a.k.a. you shelling out more dollars for out-of-pocket costs) if an insured event was to unfortunately happen. Consult an industry expert (like a builder and an architect) or use handy online calculators (like CoreLogic’s) to estimate rebuilding costs and steer clear of underinsurance. 

Adrian Bennett

General Manager for General Insurance

What happens if I underinsure my property?

Here’s a sobering reality check: If you underinsure your home, your insurance provider might only pay out a portion of the rebuild costs, leaving you to cover the rest.   

For example, if your replacement cost is $500,000, but you only insured the property for $300,000, your insurer may only cover a portion of the damages. Imagine paying half the rebuild cost out of pocket! 

Underinsurance is a trap that many homeowners fall into. It’s tempting to reduce premiums by insuring your house for less than its replacement cost. But it’s not worth the risk.¹For more information, see Moneysmart – Home insurance

How often should I update my insurance amount?

While some providers automatically update (or increase) the insured value to reflect inflation, it is a good idea to review your coverage every few years (or sooner if you make renovations).  

Did you install a high-end kitchen? Redo your bathrooms? Add a pool? All these upgrades increase the replacement value of your home, meaning you may need to adjust your insured amount accordingly.  

Likewise, rising construction costs due to inflation can impact your replacement costs, even if your home hasn’t changed. Regularly reviewing your policy is good practice and could save you financially in the long run.  

Building insurance doesn’t have to cost an arm and a leg

Leaving your property unprotected from unexpected disasters could cost heaps more than building insurance. Think about it – can you really afford to rebuild your home out of pocket if something diabolical happens? Whether you’re considering building insurance for the first time or reviewing an existing policy, now is a good time to ensure your home and pocket are fully protected. 

A little effort now could save you a heap of financial pain later. iSelect can help you explore policies today.