According to The Sydney Morning Herald, the new owners of Seaforth's iconic wedding cake home have kicked off renovations on the $8.5 million property — having previously sold their Bronte abode for $18 million. The news is a reminder that when a high-value property changes hands and enters active renovation, the insurance obligations on that building change too. Construction activity introduces risks that a standard home and contents policy is rarely structured to cover, and the cost of rebuilding or reinstating a prestige property has risen sharply in recent years.
The Underinsurance Problem Hiding in Plain Sight
Underinsurance is one of the most consistently underestimated risks facing Australian homeowners, and construction-cost inflation has made it significantly worse. A sum insured that accurately reflected rebuild costs three or four years ago may now fall well short of what it would actually cost to demolish, clear, and reconstruct a home to the same standard. For prestige properties — those with bespoke joinery, imported fittings, architect-designed features, or heritage detailing — the gap between a dated sum insured and current replacement cost can be substantial.
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The sum insured on a building policy is the maximum amount the insurer will pay in the event of a total loss. It is not the market value of the property, nor is it the price paid at auction. It is the cost of rebuilding the structure from the ground up, including demolition, site clearance, professional fees, and compliance with current building codes. For a property like the Seaforth wedding cake home — architecturally distinctive and carrying the kind of detailing that commands a premium from specialist trades — that figure requires careful calculation, not a rough estimate.
When a property undergoes significant renovation, the sum insured must be reviewed and updated to reflect the value being added. New kitchens, bathrooms, extensions, and structural upgrades all increase the cost of reinstatement. A policyholder who completes a major renovation without notifying their insurer and adjusting their sum insured may find, at claim time, that their coverage reflects the pre-renovation structure rather than the improved one. That is a gap the insurer is not obligated to fill.
How to Calculate a Realistic Building Sum Insured
The starting point for any sum-insured review is a professional building replacement cost assessment, carried out by a quantity surveyor or experienced building estimator. Online calculators — offered by some insurers and industry bodies — can provide a rough guide, but they apply broad per-square-metre rates that may not capture the cost of high-specification finishes, unusual construction methods, or the premium that heritage or architecturally significant homes attract when engaging specialist trades.
Homeowners should factor in costs beyond the build itself. Demolition and debris removal, council fees, architect and engineer fees, and the cost of temporary accommodation during reconstruction all form part of a true reinstatement figure. Some policies include these as additional benefits; others apply them against the sum insured. Reading the policy carefully — or asking a broker to explain the distinction — determines whether the nominated sum insured needs to be higher to absorb those ancillary costs.
For owners currently undertaking renovation works, the period of construction itself warrants a separate conversation with their insurer. Standard home policies may exclude or limit cover while the property is unoccupied or while structural works are underway. A contract works or home-under-renovation policy provides the cover appropriate to that phase, protecting against damage to the structure, materials on site, and liability arising from the works.
Title Type and Insurance Obligations
The type of title a property is held under affects both the insurance obligations and the options available to an owner. A freestanding house on Torrens title gives the owner complete control over the building — they choose their own insurer, set their own coverage levels, and bear the full reinstatement risk. An apartment on strata title shares building insurance obligations with the owners corporation, but the lot owner's individual policy must still cover contents, improvements, and liability arising from their specific use of the lot. The two title types create very different starting points for an insurance review. Our encyclopedia entry on Strata Title vs Torrens Title explains these distinctions in full detail.
For strata owners, the owners corporation's building policy covers the structure and common property — but the accuracy of that policy's sum insured is equally subject to the underinsurance risk described above. Owners corporations that have not reviewed their building replacement cost assessment in recent years, or that have completed capital works without updating their coverage, may be carrying a collective underinsurance exposure that affects every lot owner in the building. Lot owners who are unsure whether their building's sum insured is adequate should raise the matter at the next owners corporation meeting or request sight of the current assessment.
Practical Steps for Australian Homeowners
The most important action any homeowner can take — particularly one who has recently purchased, renovated, or improved their property — is to review their building sum insured before a loss event, not after. An underinsurance shortfall discovered at claim time cannot be retrospectively corrected. The insurer will apply the policy limit, and the gap between that limit and the true cost of reinstatement falls entirely on the owner.
Homeowners should review their sum insured annually as a matter of routine, and immediately following any renovation or improvement that adds material value to the structure. Where the property is architecturally significant, heritage-listed, or built to a specification above standard residential quality — as is the case with many prestige Sydney homes — a professional replacement cost assessment is worth the investment. The alternative is discovering, at the worst possible moment, that the cover purchased bears little relationship to the cost of putting things right. For a comprehensive overview of home and property insurance as it applies to Australian owners and investors, see our Property Insurance Guide.
This article was produced with AI assistance and reviewed for accuracy. Content is for informational purposes only and does not constitute financial or property investment advice.
