Getting Your House Sum Insured Right

🏚️ Sum Insured Is the Rebuild Cost

Most New Zealand house policies are sum insured, meaning you set a dollar figure that the insurer will pay up to if your home is destroyed. The single most important thing to understand is that this figure is the cost to rebuild your home, not its market value or what you paid for it. Getting it wrong is how people end up underinsured.

                Key Point: Since most cover moved to sum insured, you choose the amount your home is insured for. That amount should be the full cost to rebuild your house, including demolition, debris removal, professional fees, and meeting current building rules. It is not the market value, and not the land, which is not at risk. Set it too low and a major claim leaves you short. Review it regularly, because building costs rise over time.
            

Sum Insured vs Market Value

Figure	What It Is
Market value	What the property would sell for, including land and location
Sum insured	The cost to rebuild the house from scratch

These can be very different. A home in a pricey location might sell for far more than it costs to rebuild, while an older home might cost more to rebuild than its sale price. Insurance is about the rebuild, not the sale.

Land Is Not Insured

You cannot destroy the land, so it is not part of the sum insured. That is one reason the insured figure is often lower than the market value, especially where land is the main value.

🧱 What the Rebuild Cost Includes

More Than Just the Building

A realistic rebuild figure includes a lot of costs people forget. If you only insure the bare building, you can still fall short.

Demolition and removal of debris
Professional fees, like architects and engineers
Meeting current building code, which may cost more than the original
Driveways, paths, fences, decks, and landscaping if covered
Council and consent costs

                Rebuilding to today's rules costs more: An older home may have to be rebuilt to current building and insulation standards, which can be more expensive than the original construction. A good rebuild estimate allows for this.
            

How to Estimate It

Use a sum insured calculator based on floor area and quality

Add for extras like decks, garages, and special features

Allow for demolition, fees, and current building rules

For complex or high-value homes, get a professional assessment

Our House Sum Insured Calculator gives an indicative rebuild figure, and a quantity surveyor or valuer can give a detailed one.

📉 Avoiding Underinsurance

Why Underinsurance Hurts

If your sum insured is below the real rebuild cost, a total loss means the payout will not cover the rebuild, and you make up the gap yourself. Underinsurance is common because people guess, or never update an old figure as costs rose.

Rebuild really costs, say, $600,000

You insured for $450,000 because it was never updated

A total loss leaves a $150,000 gap you must fund

That is the cost of an out-of-date sum insured

Keep It Current

Building costs rise, and renovations add value to rebuild. Review your sum insured each year and after any significant work, so it keeps pace. Many insurers prompt a review at renewal, but the responsibility is yours.

The Natural Hazards Levy

Your premium also includes a levy that funds natural hazard cover for events like earthquakes. That sits alongside your private cover, but it does not remove the need to set your own sum insured correctly.

💡 Common Mistakes

Mistake 1: Insuring for Market Value

Market value includes land and location, which are not the rebuild cost. Using it can leave you over or under insured.

Mistake 2: Never Updating the Figure

An old sum insured falls behind rising building costs and renovations, quietly creating underinsurance.

Mistake 3: Forgetting Demolition and Fees

Insuring only the bare building ignores demolition, debris removal, and professional fees, which are real rebuild costs.

Mistake 4: Guessing for a Complex Home

For high-value, large, or unusual homes, a guess can be badly wrong. A professional assessment is worth it.

A Simple Approach

1. Remember the sum insured is the rebuild cost, not market value

2. Include demolition, fees, and current building rules

3. Use a calculator, or a professional for complex homes

4. Review every year and after renovations

5. Do not let an old figure drift below the real cost

See our Insurance Basics guide and the Home Insurance Calculator. Final word: your house sum insured is the full cost to rebuild, not the market value or the land. Include the often-forgotten costs, use a calculator or professional, and review it regularly so it keeps pace with building costs. This is general information, not advice; check your policy and consider professional help.

🎯 Test Your Knowledge

Quiz on House Sum Insured (20 Questions)

1. A sum insured policy means:

You set the dollar amount the insurer pays up to

The insurer pays any amount

There is no limit

The land is covered

2. The sum insured should be:

The cost to rebuild the house

The market value

What you paid for it

The land value

3. Market value differs from rebuild cost because it includes:

The land and location

Only the roof

Nothing extra

Your furniture

4. The land is:

Not insured, since it cannot be destroyed

The main thing insured

Half the sum insured

Always included

5. A realistic rebuild figure includes:

Demolition, debris removal, and professional fees

Only the bare walls

Your car

Your salary

6. Rebuilding an older home to current standards can:

Cost more than the original construction

Always cost less

Be free

Be unnecessary

7. For complex or high-value homes you should:

Get a professional assessment

Guess a round number

Use the market value

Insure for the land

8. Underinsurance means:

The payout will not cover the rebuild and you fund the gap

You get a bigger payout

You pay no premium

Nothing

9. Underinsurance is common because people:

Guess, or never update an old figure

Always over-insure

Use professionals every year

Read every policy line

10. You should review your sum insured:

Each year and after significant work

Never

Only when you sell

Once a decade

11. Building costs over time:

Rise, so an old figure falls behind

Always fall

Stay fixed

Do not matter

12. Renovations:

Add to the rebuild cost, so update the figure

Lower the rebuild cost

Have no effect

Cancel your cover

13. A premium levy funds:

Natural hazard cover for events like earthquakes

Your mortgage

Your car

Nothing

14. Insuring for market value can leave you:

Over or under insured versus the rebuild cost

Perfectly insured every time

With no premium

Covered for the land

15. A home in a pricey location might:

Sell for far more than it costs to rebuild

Cost the same to rebuild as to buy

Never need insurance

Have no rebuild cost

16. Insuring only the bare building:

Can still leave you short, missing demolition and fees

Is always enough

Covers the land too

Is the safest approach

17. A sum insured calculator works from:

Floor area and quality, plus extras

Your income

The market value only

Your age

18. The responsibility for the sum insured being right is:

Yours, even if the insurer prompts a review

The bank's

The council's

No one's

19. An out-of-date sum insured:

Quietly creates underinsurance as costs rise

Always over-insures you

Reduces your premium safely

Has no effect

20. The overall message is:

Insure the rebuild cost with all extras, and review it regularly

Insure the market value

Never review it

Insure the land

If you've found a bug, or would like to contact us, or learn more about James Graham and Calculate.co.nz.

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