Why Your Insurance Might Not Cover the Full Cost to Rebuild Your Property

Property Underinsured? Many property owners believe they’re fully insured — until disaster strikes. Only then do they realise their policy doesn’t cover the full cost of rebuilding. This is called underinsurance, and it’s more common than most people think.

An accurate insurance replacement valuation helps you avoid this costly mistake.

What Is an Insurance Replacement Valuation?

It’s a report prepared by a professional valuer that determines what it would cost to rebuild your property from the ground up — not what it would sell for on the open market.

It includes:

Demolition and site clearance
Construction and professional fees
Allowances for inflation and compliance
VAT where applicable

It ensures your sum insured reflects the true cost of reinstatement.

Market Value ≠ Replacement Cost. Is your Property Underinsured?

This is where many policyholders go wrong. The market value of your home (what you could sell it for) has little to do with how much it would cost to rebuild it.

For example:

A house in George might sell for R2.5 million
But if it burns down, it could cost R3.2 million to rebuild — especially with today’s construction prices

Insuring for R2.5 million in that case would leave you R700,000 short.

Why Underinsurance Is So Risky

Insurers apply what’s called the average clause. That means if your sum insured is too low, you’ll only be paid a proportion of your loss.

Example:

You insure for R2 million
The actual replacement cost is R3 million
A fire causes R1.5 million in damage
The insurer pays out two-thirds of your claim = R1 million
You must cover the remaining R500,000

It’s a painful surprise — and it happens often.

Common Causes of a Property Underinsured

Valuing based on market prices instead of rebuild cost
Not updating your sum insured for years
Adding new structures or improvements (like a flatlet or pool) but not telling your insurer
Relying on outdated or generic online calculators

A professional valuation avoids these pitfalls.

When Should You Get a New Valuation?

It’s recommended that you update your insurance valuation:

At least every 3 years for residential properties
Annually for commercial buildings or sectional title schemes
Immediately after major renovations or alterations

Building costs in South Africa have increased significantly in recent years. Materials, labour, and compliance costs continue to rise — so an old valuation could leave you exposed.

Insurance Valuations for Sectional Title Schemes

Trustees and managing agents have a legal duty to ensure that body corporate properties are adequately insured. Many insurers now require formal valuation certificates as proof.

As a registered valuer, I can provide:

Full building reinstatement valuations
Certificates accepted by major insurers and brokers
Peace of mind for all unit owners

Real-World Example

I was recently asked to value a house in Mossel Bay. The owner had insured it for R1.8 million — based on the price he paid in 2016. My report showed a rebuild cost of R2.9 million. Fortunately, we caught the shortfall before anything went wrong. He updated his policy and now sleeps easier at night.

Property Underinsured? Need a valuation update?

Underinsurance is one of those problems you don’t see — until it’s too late. Whether you’re a homeowner, landlord, or trustee, an accurate replacement valuation is one of the most practical forms of risk management you can invest in.

If you’re unsure about your current sum insured, I can help with a detailed, insurer-approved report — tailored to your property and location.

Claire King 072324407

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.