Understanding your sum insured

A man handing over a bag of money.

‘Sum insured’ is a term often mentioned when taking out insurance but it can sometimes be confusing. Let’s take a closer look at what sum insured actually means.

What is sum insured?

Sum insured is referred to in both home and contents insurance. From a contents perspective, sum insured is the total amount your contents are covered for. For home, it is agreed to with your insurer when you first purchase your insurance, and each year upon renewal, and is the maximum amount that your insurance provider will pay to rebuild your home. Please note, sum insured does not refer to the market value of your property or how much you paid for your house.

At AA Insurance, the sum insured is the maximum we will pay to rebuild your home after a natural disaster, as we use replacement cover for all other home claims. For all other home claims, we would fully repair, rebuild or replace your house, as long as you have taken reasonable steps to correctly estimate your house’s sum insured. That is why it’s so important that you review your sum insured each renewal to ensure its accurate and up to date.

The sum insured is based on the cost to rebuild your house, which you need to calculate and provide when taking out insurance. There are several ways you can calculate your sum insured, including contacting an expert such as a builder, architect or quantity surveyor. Alternatively, you can use the online Cordell Sum Sure Calculator which estimates typical building costs for standard residential houses.

A short description of sum insured

An example of sum insured

Samantha and Lauren purchased a house at the start of the year and used the Cordell Sum Sure Calculator to find their new house had an existing rebuild value of $410,000. They both love renovation projects and re-vamped the kitchen as well as adding a permanent pizza oven in the backyard. These additions increased the amount that would be needed to rebuild their house, so when it came to renew their policy, Samantha and Lauren updated their sum insured figure to $450,000.

The specific sum insured amount will be unique to each individual property but here are a few things that are taken into consideration when calculating it:

  • The floor area of your house

  • Construction materials

  • Quality of the materials used

  • Separate dwellings on the property

  • Permanent fixtures e.g. pizza oven

  • Labour costs

Key takeaways

At AA Insurance, the sum insured is the maximum we will pay to rebuild your home after a natural disaster. There are several ways you can calculate your sum insured, including contacting an expert such as a builder, architect or quantity surveyor. It’s important to review your sum insured regularly, especially after renovations and at each policy renewal, to ensure its accurate and up to date.

Any questions?

Now’s a great time to review your insurance. We recommend checking your details are up to date and ensuring the policy and cover you’ve chosen is right for you and your insurance needs.

If you have any questions about your insurance, need to update your AA Insurance policies or would like a quote, don’t hesitate to contact us. We’re open from 8am to 8pm weekdays and from 8am to 6pm weekends and public holidays.

This blog provides general information only and is not intended to be a recommendation or personalised financial advice. Excesses, terms, conditions, limits and exclusions apply to AA Insurance Limited’s policies. Please check the policy wording for details of cover. The provision of cover is subject to the underwriting criteria that apply at the time.

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