Australian homeowners are currently at an extremely high risk of being underinsured due to significant upward pressure on the construction costs of rebuilding a home. Many homeowners may have not accounted for this when nominating their building sums insured.
Australia is amid a critical timber shortage due to a surge in demand during the COVID-19 pandemic. With more Aussie families putting off holiday plans, many have decided to use cash reserves on home building and renovations, making timber a rare and expensive commodity. Even hardware conglomerate Bunnings Warehouse has fallen victim to the latest shortage, with rows of empty shelves in the timber and framing timber aisles. This shortage is causing timber prices to skyrocket, with crippling delays in construction and massive cost blow-outs. The cause of the shortages and significant cost increase can be attributed to two combined factors:
- COVID-19 and shortage of building materials – the shortfall of timber and other building materials can be attributed to the challenges COVID-19 has presented for safely managing a workforce across logging, processing and logistics. Social distancing requirements and illness have often meant fewer employees can work at once, reducing overall capacity, and an inability to keep up with demand.
- Increased demand for building materials – home building incentives have been a primary feature of economic stimulus packages throughout the pandemic. As a result, there has been a huge leap in demand for building materials, leading to a subsequent rise in the cost of construction.
Considering this spike in construction costs, homeowners everywhere should be asking themselves the following: Is my building sum insured high enough to replace not only my building but other elements of my property like retaining walls, water tanks and garages in a total loss?
Most owners realise that the sum insured of their property is based upon a realistic total replacement value. Therefore, the implications of rising building costs for property owners are significant, as construction costs are now far higher than what many have nominated as their sum insured. This places a great number of Australians at risk of underinsurance as we speak.
This term, also known as ‘actual total loss’, indicates there’s nothing to salvage, even for repairs. In the event of a such a loss, your sums insured should allow for full replacement and reinstatement of your property – this is what you need to consider when selecting your sums insured.
Another useful term to know is ‘constructive total loss’. That’s when the estimated repair costs exceed the property’s insured value. In this instance, the insurer may pay out the policy or rebuild the property. Constructive total loss also refers to an insurance claim settled for the full value of the policy.
How can you make sure your property is insured for an appropriate amount?
While nominating the sums insured on an insurance policy is the responsibility of the property owner, a professional insurance broker can provide advice on what the market is doing to guide your decision.
While an increase in your building sum insured may not be the advice you want to hear, it will help ensure you have sufficient insurance protection in a claim.
Insurance brokers can provide professional guidance on:
- How to ensure your property is appropriately insured to cover the total cost of rebuilding,
- How to achieve the best value for money when it comes to property insurance, and
- Why it’s so important to be fully insured.
Should you desire more specific advice on the exact amount it would cost to replace and reinstate your property in a total loss, you may wish to consult with and engage the services of a Certified Quantity Surveyor.
Connect with a CBN Authorised Broker near you to help ensure your property is insured for an appropriate amount, so you don’t experience a financial shortfall if you need to rebuild following a claim.
For professional insurance advice, connect with a CBN Authorised Insurance Broker.
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