What is Underinsurance and how could it effect you as an Owner Builder?
Owner Building is a fabulous way to improve family finances, by investing in your home without paying the 30+% Builders margin, it will set you up for future financial independence.
This is not to say building your own home is easy, but depending on how you go about it, if you have experience or you use a project manager will depend together with your purchasing ability, on the amount of money it costs you.
But even if you save as little as 10% on what a builder would cost, e.g. $400,000 builder cost, thats $40,000 is your equity, which will grow over time.
Now would you like to put this at risk? By under insuring your home while building?
Owner Builders want to save money BUT do not do so by underinsuring the value of your home!
N.B Insurers, in the event of a claim, base the estimate of the damage on what a builders price of the job would have been, NOT what you and your friends built it for!
So when you enquire regarding the price of Owner Builder Construction and Public Liability Insurance, work on what a builder would have built your home for.
This is even more important when renovating and including the cost of the existing home in the policy (existing home and renovation).
If you underinsure, this is what will happen if you have a claim, based on a $400,000 build.
If your sum insured is only 50% of the value of the property required to be insured at the time that the insured damage occurs, the insurer will only cover a proportional amount of your loss, as set out below: Full Insurable value $400,000 Sum insured $200,000 (I.e. 50% of the full insurable value)
Amount of your loss $200,000 Amount the insurer will pay $100,000 (i.e. 50% of the loss) less any Excess.
This means you will be responsible for 50% of the loss you suffer (as well as any applicable excess) because your sum insured was only 50% of the value of your property required to be insured.
So what would I do? Either have your plans quantity estimated or get quotes from Registered Builders to do the job.
This way you have a position if in the event of a fire or storm you have the quote or estimate with which to approach the insurer. The last thing you need is to suffer a major financial loss and because of underinsurance, unable to rebuild your home yet having to pay the bank for the original loan.