Setting the correct building sum insured is one of the most important steps in protecting any commercial property. In 2026, rising construction costs, supply chain delays and stricter building standards mean underinsurance is becoming more common — and far more costly. Ensuring your building is insured for its true replacement cost helps safeguard your business from major financial loss if damage occurs.
What Is the Building Sum Insured?
The building sum insured is the total amount your insurer agrees to pay to rebuild or repair your commercial building if it’s damaged by an insured event such as fire, storm, impact, vandalism or accidental damage. It represents the full replacement cost of the building — meaning the amount required to completely rebuild it from the ground up using today’s construction prices, materials, labour rates and building standards.
Importantly, the building sum insured is not based on:
The property’s market value
The original purchase price
The value listed on a council rate notice
The amount shown on a mortgage or loan document
A correct building sum insured ensures your insurance responds properly after a major loss. If the figure is set too low, you may face underinsurance, reduced claim payouts, and significant out‑of‑pocket costs. Setting the right sum insured protects your financial position and ensures your commercial building can be restored without unexpected expenses or delays.
Why Underinsurance Is a Major Risk in 2026
Underinsurance occurs when your building is insured for less than it would cost to rebuild. With construction prices increasing across Australia, many commercial property owners are unknowingly underinsured. This can lead to:
Reduced claim payouts
Significant out‑of‑pocket costs
Delays in rebuilding
Financial pressure on your business
Insurers may also apply average clauses, reducing your payout proportionally if your sum insured is too low.
How to Calculate the Correct Building Sum Insured
To avoid underinsurance, your sum insured should include:
How Often Should You Review Your Sum Insured?
Commercial building owners should review their sum insured annually, or sooner if:
Renovations or extensions are completed
Construction costs rise significantly
New equipment or structures are added
A professional valuation recommends an update
Regular reviews help ensure your cover stays aligned with real‑world costs.
The Bottom Line
Accurately calculating your building sum insured is essential to avoid underinsurance and protect your commercial property. With rising construction costs in 2026, relying on outdated figures can leave you exposed. A professional valuation, combined with a detailed understanding of rebuild expenses, ensures your building is fully protected and your insurance responds as expected when you need it most.