Understanding your sum insured

It's important to understand what ‘sum insured’ means in the context of insurance. Here's some useful information to help shed light the term and tips on how to calculate your own sum insured for both home and contents insurance.

What is a 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. This handy contents calculator, independently provided by Sum Insured, can help you calculate the value of your contents so that you have enough cover to replace your belongings if you come to make a claim.

For home insurance, your sum insured 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. For damage from other events, we may settle your claim using ‘Replacement cover’, this means that we may pay more than your sum insured to rebuild or repair your home, provided you have taken the reasonable steps to provide an accurate sum insured and size of your home. That is why it’s so important that you review your sum insured each renewal and after renovations to ensure it's 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.

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

For your contents, your sum insured is the total amount your contents are covered for. For your home, the sum insured is the maximum amount that your insurance provider will pay to rebuild your home and is agreed to with your insurer when you first purchase your insurance, and each year upon renewal. If you're an AA Insurance customer, the sum insured is the maximum we will pay to rebuild your home after a natural disaster, as we may use ‘Replacement cover’ for damage caused by other events. There are several ways you can estimate your sum insured, such as using online calculators or, for home insurance, contacting an expert such as a builder, architect or quantity surveyor. It’s important to review your sum insured regularly and at each policy renewal, to ensure it's accurate and up to date.