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What would it cost to rebuild?

Insuring a commercial property for its market value or its purchase price is the classic under-insurance trap, and average clauses cut claims accordingly. This works the figure the other way round — from the cost of putting the building back up, with the demolition, fees, code upgrades and escalation that sums insured routinely leave out.

What would it cost to rebuild?

Not market value, not what you paid — what a builder would charge to put the same building back up today.

Gross floor area of the building, all levels.

From a valuer, a builder or an insurer's calculator. We do not guess this for you — see below.

Where did that rate come from?

Add the costs people leave out

A reinstatement figure is not just the building. These are the lines that get forgotten, and together they are usually why a sum insured comes out short. Every one is a planning allowance — adjust it to your building.

Before anything is rebuilt, the damaged structure has to come down and leave the site. On a contaminated or asbestos-affected building this runs far higher.

Typically 3–15% of the build cost.

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Architect, engineer, quantity surveyor, certifier and project management. A rebuild is a new project and needs the whole consultant team again.

Typically 8–15% of the build cost.

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A rebuild must meet today's National Construction Code, not the code the building was built to. Fire systems, accessibility, energy and structural provisions are the usual culprits.

Typically 5–25% of the build cost.

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Car park, hardstand, fencing, retaining walls, landscaping, signage and services to the boundary. Easy to forget because they are not part of the building.

Typically 2–12% of the build cost.

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Costs move while you are insured and again while you rebuild. Set this to the figure your broker or valuer is using.

Approvals, demolition and construction. Commercial rebuilds routinely run past 18 months.

What happens at claim time

Enter what your schedule says now. If it falls short of the figure above, most commercial policies scale the claim down rather than simply paying up to the limit.

Defaults to a fifth of the building — a serious fire well short of a total loss, which is where the clause surprises people.

Average clause on your policy

The common commercial form: insure to at least 80% of the true value and a partial claim is paid in full. Fall below it and the claim is scaled down.

This is an indicative check, not a valuation. The percentages above are planning allowances, not quoted costs, and an insurer will rely on a valuer’s assessment rather than this page. Average and co-insurance wording differs between policies — some waive it inside a margin and some carry none at all, so read your own schedule and PDS. What this is good for is telling you whether the figure on your schedule is in the right postcode. If it is not, that is worth a conversation.

Sums insured, explained

What should I insure a commercial property for?
The cost to rebuild it today, not its market value and not what you paid. Market value reflects land, location and yield, none of which burn down; a reinstatement figure is what a builder would charge to put the same building back up. It has to include demolition and debris removal, the full consultant team, and the compliance upgrades that today's National Construction Code will force on the rebuild even though the original building was legal without them.
What is an average or co-insurance clause?
It is the clause that reduces a claim when the sum insured falls short of the true value. The common commercial form is 80% co-insurance: insure to at least 80% of the reinstatement cost and a partial claim is paid in full, but fall below it and the claim is scaled by the proportion you were short. Insure a $3m building for $2m and a $300,000 fire claim is settled at $250,000, with the remaining $50,000 yours to fund. Wording differs between policies — some waive it inside a margin, some carry none at all — so read your own schedule.
Why does underinsurance still hurt on a partial claim?
Because most owners assume being under-insured only matters on a total loss, where the payout stops at the sum insured. An average clause changes that: it reaches into ordinary partial claims, which are the overwhelming majority of commercial property losses. A fire that damages a fifth of a building is where people discover the clause, and it is why insuring to 60 or 70% of value is a decision with a cost long before anything is written off.
Should the sum insured include GST?
It depends whether you can recover the GST on the rebuild. If you are registered and can claim the input tax credit, the sum insured is normally set GST-exclusive. If you cannot recover it, the 10% is a genuine cost of reinstatement and needs to sit inside the figure, or you are 10% short before anything else is counted.
Do I need to allow for cost escalation?
Yes, and it is one of the most commonly missed lines. The figure has to hold up not at the date you set it but at the date the building is finished, which on a commercial rebuild can be two years and more once assessment, approvals and construction are counted. Australian construction costs have moved sharply, so a sum insured set from a valuation a few years old and never indexed is often well short through nothing more than time passing.
How accurate is this calculator?
The arithmetic is exact, but it is only as good as the build rate you give it, and we deliberately do not guess that rate for you — an invented rate would produce a comfortable-looking figure and the underinsurance this tool exists to expose. Treat the result as a check on whether the number on your schedule is in the right postcode. An insurer will rely on a valuer's assessment, not this page, and we can arrange one.

Want the figure done properly?

We can arrange an insurance valuation and place the cover at a sum insured that will hold up at claim time. 19,000+ clients, and claims handled by our own team — which is exactly when getting this number right pays for itself.

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