Australian homeowners face an increased risk of being underinsured as inflation drives up construction costs and labour expenses. The surge in demand for building and renovations during the pandemic, coupled with supply chain disruptions, has led to a significant rise in building material costs. Timber shortages, in particular, have caused delays and cost blow-outs in construction projects across the country.
The combined impact of COVID-19 disruptions and heightened demand for building materials has created a challenging environment for the construction industry. Inflation-driven rises in building costs and labour expenses, coupled with the backlog of people option to build due to pandemic incentives, have created a challenging environment.
Concurrently, government incentives for home building have added to the surge in demand for construction materials, compounding the challenges faced by the industry.
Given this spike in construction expenses, homeowners must reassess their building sums insured to ensure comprehensive coverage for property replacement, including additional elements like retaining walls, water tanks, and garages. Many property owners may find that their current sums insured are insufficient in the face of rising building costs, putting them at risk of underinsurance.
Two critical terms come into play: 'actual total loss,' where nothing is salvageable, and 'constructive total loss,' where repair costs surpass the insured value. Professional insurance brokers play a vital role in guiding property owners to nominate appropriate sums insured, factoring in market dynamics and rising construction expenses. While adjusting building sums insured may not be the preferred advice, it is essential for ensuring adequate protection in the event of a claim.
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 offer valuable insights into:
- Ensuring proper coverage for the total cost of rebuilding.
- Achieving optimal value for money in property insurance.
- Understanding the importance of full insurance coverage.
For more precise information on replacement and reinstatement costs in the event of a total loss, property owners may seek the expertise of a Certified Quantity Surveyor.
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