Does My Insurance Cover Full Rebuild Cost?

If your house burned down tomorrow, would your insurance cover the full cost to rebuild it — or would you be left with a major shortfall?

Many South African property owners are surprised to find their insurance payout doesn’t stretch far enough. The reason? Their sum insured was too low to begin with.

What Does My Policy Actually Cover and Does My Insurance Cover Full Rebuild Cost?

When it comes to building insurance, your policy is based on the sum insured you’ve provided. That figure should represent the total cost to rebuild your property from scratch, including:

Demolition and site clearance
Materials and labour
Professional fees (architects, engineers, permits)
VAT and inflation
Site conditions and access costs

If your sum insured is incorrect, the insurer won’t cover the full loss. You’ll only be paid out proportionally based on what you were actually covered for.

The Average Clause: A Costly Surprise

South African insurers apply the average clause when a property is underinsured. That means your payout is reduced based on the percentage of underinsurance.

Let’s say:

Your rebuild cost is R2.5 million
You insured for R1.75 million (only 70%)
A fire causes R1 million in damage
The insurer only pays 70% = R700,000
You must cover the rest out of pocket

This happens every day to property owners who didn’t realise their policy was based on outdated or incorrect information.

The Risks of Guessing or Using the Wrong Value

Many people:

Use the market value of the property
Base the sum insured on what they paid years ago
Rely on online calculators with no inspection
Don’t include outbuildings or improvements
Forget about updated building regulations and inflation

This leads to gaps in cover that only become visible when it’s too late.

Why Construction Costs Keep Climbing – Does My Insurance Cover Full Rebuild Cost?

In South Africa, building costs have risen sharply due to:

Material price increases (steel, timber, cement)
Labour cost inflation
Higher professional and municipal compliance fees
Load shedding-related delays and backup systems
New building regulations and environmental standards

What it cost to build 5 years ago may no longer be realistic today.

Signs You Might Be Underinsured

You may be at risk if:

Your policy hasn’t been reviewed in over 3 years
You’ve made renovations, additions, or upgrades
Your sum insured is based on your original purchase price
You’re using municipal valuation figures as your guideline
You haven’t had a professional valuation done

Each of these factors increases your exposure to underinsurance. Are you asking yourself – Does My Insurance Cover Full Rebuild Cost?

How a Replacement Cost Valuation Helps

A registered valuer will:

Inspect your property thoroughly
Calculate the full cost to rebuild using current rates
Include all necessary allowances (demolition, fees, VAT)
Provide a report accepted by insurers and brokers

You can then update your policy with confidence, knowing your cover matches your risk.

Example from My Work

A client in Knysna had been insuring her home for R2.2 million based on an estimate from years ago. After I conducted a full replacement cost valuation, we found the current rebuild cost was R3.4 million. She adjusted her policy, and while her premium increased slightly, she now has real protection — not a false sense of security.

What to Do If You Think You’re Underinsured

Check your policy — look at the current sum insured
Compare it with today’s building rates (R/m² for your area and building type)
Get a professional valuation if you’re unsure
Update your policy with your broker or insurer

Thinking Does My Insurance Cover Full Rebuild Cost? Contact me:

Insurance is only helpful if it covers what it’s supposed to. A gap in your building insurance can cost you hundreds of thousands — or even force you to downsize after a disaster.

If you want to be sure your cover reflects the real cost to rebuild, I can assist with an accurate, insurer-approved valuation tailored to your specific property and location.

Claire King 0732324407

Also have a look at the following related articles:

Eight Common Mistakes Farmers Make When Valuing their Property

Agricultural Valuations for Estate Planning and Inheritance

Selling Your Agricultural Property? Start with a Registered Valuation

Agricultural Property Valuations in George – a complex challenge for Valuers

Interested in Farm Valuations? Check out more at the SAIV website.