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Sum insured, or most insured?

Jasmine and her husband, Maliaga, purchased their first home in 2016, for about $380,000. They arranged a home insurance policy through their insurance adviser, and they insured the home for $705,000.

In 2019, Jasmine was talking with a friend who had built a house just down the road from Jasmine and Maliaga, at a cost of only $450,000. This led to Jasmine thinking she might be over-insured. Her sum insured had been increasing with inflation, and at that stage had reached $805,000. Her friend’s house was much nicer and more modern than her own, so she did not think that rebuilding her home could cost $805,000.

Jasmine contacted her insurance adviser and raised some concerns that she might be over-insured. She asked for her sum insured to be reduced to $500,000.

The next year, in 2020, Jasmine discovered that the sum insured had not been reduced and that she was still paying increased premiums.



Jasmine said that her insurance adviser had recommended she insure her home for $705,000. She said this was a tremendous overestimate of the cost to rebuild her home. She said that she was over-insured as a result of her adviser’s recommendation, so she wanted her adviser to refund the increased premiums which she had been paying since 2016.

Jasmine also said that, in 2019, she had given explicit instructions to the adviser to reduce her sum insured to $500,000 – but the adviser had failed to do so.

The adviser said that they do not ever recommend a sum insured for a client. They are not expert valuers, and they said they would not know where to begin with valuing a house. They said their standard practice is to point a client to an insurer’s online sum insured calculator. They said that was almost certainly what they had done for Jasmine and Maliaga in 2016.

The adviser also said that, when Jasmine asked them about reducing the sum insured in 2019, their understanding was that Jasmine was going to think about the risks involved in reducing her insurance, then reach out again if she decided to go ahead and reduce her sum insured. 

Jasmine complained to FSCL.



We reviewed Jasmine’s complaint and were not satisfied that the adviser had recommended $705,000 as a value for Jasmine’s sum insured. This would have been a significant departure from the adviser’s standard practices. The adviser had most likely pointed Jasmine towards an online insurance calculator, and left Jasmine and Maliaga to come up with their own amount for the sum insured.

And even if the adviser had recommended the $705,000 figure, we were not satisfied this would have caused Jasmine any loss. Even though $705,000 was much more than the market value of Jasmine’s property, we did not think that it was necessarily over-insurance. If an earthquake or other disaster destroyed Jasmine’s home, the cost of demolishing and removing the building, repairing any damage to the land, then constructing a new home could easily add up to $705,000.

We did, however, agree that the adviser had failed to reduce Jasmine’s sum insured in 2019. Jasmine’s email to the adviser was an unambiguous instruction to reduce the sum insured to $500,000.



We recommended the adviser refund the extra $1,200 in premiums which Jasmine and Maliaga had paid between 2019 and 2020. Jasmine, Maliaga and the adviser accepted this recommendation.


Insights for consumers

It can be appropriate to insure your home for more than its purchase price. If your home is damaged in a natural disaster, you might need your insurance to cover the cost of demolishing the house, strengthening the land, and then constructing a new building. This can add up to be significantly more than you paid for the property. You don’t want to be caught short after a disaster.

On the other hand, insuring your home for a higher amount will increase your premiums. If you’re insured for significantly more than the value of your property, it’s fair for you to take some questions to your insurance adviser. You may want to seek a professional valuer’s opinion on the rebuild value of your house, so you can be certain your insurance cover is right for you.