Since the Christchurch earthquakes, insurance companies have changed the way your home insurance is calculated. Previously homes were covered by a 'total replacement' policy based on the size of the house, now homeowners have to estimate the cost of rebuilding their house - and insure it for that.
Sum insured is the maximum amount your insurance company will pay in the event of a claim when your home is totally destroyed or badly damaged. It's therefore up to you to ensure the Sum Insured amount for your home accurately reflects the likely cost of a rebuild.
QV recently posted an article Sum Insured - What you need to know.
Throughout 2013, most insurance companies have been in the process of moving away from their previous method of working out your insurance cover, which was based on an unspecified replacement value calculated only on the floor area of the property. Now, insurers are changing to a policy based on "sum insured". Knowing the key differences between replacement value and sum insured will leave you feeling confident and secure in your cover.
Replacement value: based on rebuilding your property to the same standard and floor area as stated on the policy.
Sum insured: based on the actual and full cost of rebuilding your entire home on the existing land, including:
- All demolition and site clearance
- All consents, design and project management
- All materials and building costs
- All fixtures and fittings not covered by contents insurance.
You cannot simply take the Rating Value, recent sales' price or valuation as being equivalent to the cost of a full rebuild.
To work out your rebuilding cost, try this calculator at need2know.org.nz.