Overview
In August 2006 CommInsure completed an underinsurance analysis of policies that had made claims for total building losses to see how many policies had insufficient cover to fully rebuild the property. The analysis showed that on average CommInsure customers were underinsured by 24%.
The financial impact for individual consumers of being underinsured can be severe, as shown by the aftermath of the 2003 Canberra bushfires. Many of those who lost their homes were unable to rebuild due to inadequate insurance cover.1
The value of replacing your home can also change drastically over time and leave you exposed if you don’t have up to date cover. Building costs can change and this is particularly the case where a number of homes are destroyed at the same time, as a result of disasters such as a cyclone, bushfires or major storms.
Widespread loses can drive an increased demand for building supplies which means the cost of providing and purchasing those supplies inevitably increase as well. This makes it even more difficult to determine what the correct level of insurance cover should be.
How to assess your policy
At CommInsure we encourage our customers to regularly assess their policies to make sure they’re covered for the right replacement amount. We also provide online calculators to assist.
Customers also have an obligation under the terms and conditions of their policy to try, as close as they can, to estimate the right sum insured amount. However we do understand that this process can be a difficult task. The various means, provided by different insurers, to try and determine a sum insured level can be time consuming and confusing. Plus you may need to know what the size of your home is in square metres and what it’s made out of and then take into account the ever increasing cost of building materials.
But what happens if you do get it wrong and you suffer the total loss of your home?
Losing a home can be traumatic and stressful. You always assume that if this situation were to occur that your home insurance would cover everything. That’s why you take out insurance. You never think about whether you would be out of pocket for the difference between your sum insured and the actual replacement cost. But if this did happen how would you find the extra funds to rebuild your home?
Most home insurance policies limit your building claim to your documented sum insured. With CommInsure’s Total Building Replacement Cover you’ll have insurance protection for the actual cost to rebuild, for the buildings full value which means you won’t be left out of pocket or required to pay the difference. When CommInsure’s Total Building Replacement Cover applies on our Residential and Investment Home Packages you won’t have to worry about being underinsured. It covers most customers in the event of a loss for the replacement value of their building no matter what they have nominated as their sum insured2. It applies to the building component of CommInsure’s Residential and Investment Home Packages. It does not cover contents insurance.
How does Total Building Replacement Cover work?
For example, assume the building sum insured on your Home Insurance is $250,000 and the building is destroyed by fire. Your insurer considers the destruction to be a total loss and you will need to rebuild from scratch. Your insurer processes and finalises your claim and pays you $250,000 to rebuild for the full value of the building. However, following meetings and discussions with your builder, you realise that the rebuilding cost is going to be $300,000 and this is just to get you back into the position you were in before the fire. Where are you going to find the additional $50,000? When you have Total Building Replacement Cover on a CommInsure Home Insurance Policy we will pay the additional $50,000 so you will not be out of pocket. CommInsure will pay the full replacement cost of the building2.
You will not be charged any additional premium to cover the cost of Total Building Replacement Cover. You do not have to do anything to receive it, but you will have the assurance of knowing that if your sum insured is a bit off the mark and below what it would cost to replace your home, CommInsure will not leave you out of pocket.
- Getting home insurance right – a report on home building underinsurance, ASIC, September 2005.
- Limitations and exclusions apply. Please refer to the CommInsure Home Insurance Product Disclosure Statement (PDS) for full terms and conditions.
Important information
Full conditions for Total Building Replacement Cover are outlined in the relevant Product Disclosure Statement (PDS), preparation date 8 May 2007. Total Building Replacement Cover is currently not available to those customers whose claims settlement would be on the basis of indemnity cover as shown on the certificate. Indemnity cover relates to the market value of the home being paid to the customer rather than the actual cost to rebuild, with an allowance for wear, tear and home depreciation. Your insurer will advise you if your policy is covered on an indemnity basis. As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on this advice, consider its appropriateness to your circumstances. The example in this site is for illustrative purposes only. This information is provided by CommInsure, a registered business name of Commonwealth Insurance Limited ABN 96 067 524 216, AFSL 235030 (CIL), which is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 and is the insurer for Residential Home and Investment Home Packages. A Product Disclosure Statement (PDS) is available from any branch of the Commonwealth Bank. They can also be downloaded at comminsure.com.au and should be considered before deciding to purchase any of these products. CommInsure can be contacted on 13 24 23. You pay us premiums or fees for the products that we provide to you. Employees of CommInsure, who provide a service, do not receive specific payments or commissions for the giving of that service but do receive salaries. Bonuses and other benefits may also be paid to employees. Where a licensee in the Commonwealth Bank Group sells a CommInsure building and contents product, commission up to 10% of the annual premium paid in the first year may be paid by CommInsure to that licensee.
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