What’s the Difference Between Market and Insurance Value?
The Difference Between Market and Insurance Value – Many property owners confuse market value with insurance value. They sound similar — but they serve very different purposes.
Using the wrong one when arranging insurance can lead to serious financial consequences. Here’s what you need to know.
Table of Contents
Market Value: What the Property Would Sell For
Market value is the price your property would fetch on the open market at a given time. It depends on:
- Location and neighbourhood
- Demand and supply
- Condition of the property
- Size, layout, and land value
- Comparable recent sales
Estate agents and valuers use market value to guide:
- Sale and purchase decisions
- Investment analysis
- Tax and legal matters
- Deceased estates and divorce settlements
But market value is not relevant when insuring a property.
Insurance Value: What It Would Cost to Rebuild
Insurance value refers to the cost to rebuild the property from scratch if it’s damaged or destroyed. This is also called the replacement cost or reinstatement value.
It includes:
- Demolition and rubble removal
- Construction costs (labour, materials, fittings)
- Professional fees (architects, engineers, municipal approvals)
- Escalation for inflation
- VAT
You’re not insuring the land — you’re insuring the structures on it.
A Simple Example showing The Difference Between Market and Insurance Value
Let’s say you own a house in George:
- Market value: R3.5 million (includes land value and demand in the area)
- Replacement cost: R2.4 million (cost to rebuild the house and outbuildings)
If you insure it for R3.5 million:
- You may be over-insured, and paying too much in premiums
If you insure it for less than R2.4 million:
- You’ll be under-insured, and your payout will be reduced in the event of a claim
Common Mistake: Using Market Value to Set Your Sum Insured
This happens often. A homeowner takes the sale price or municipal valuation and uses that figure for their building insurance. But those numbers are tied to market forces — not construction costs.
Remember:
- Property prices go up and down based on demand
- Building costs generally only go up over time
That’s why using market value can either inflate or undermine your insurance cover.
Why the Confusion? The Difference Between Market and Insurance Value
It’s easy to see why people mix them up. Both values are “official”, and both can be mentioned in documents like bank valuations, deeds office records, or municipal bills.
But they’re used in completely different contexts:
| Purpose | Uses Market Value | Uses Insurance Value |
|---|---|---|
| Selling or buying | ✅ Yes | ❌ No |
| Paying property tax | ✅ Yes (municipal) | ❌ No |
| Applying for a bond | ✅ Yes | ✅ Sometimes |
| Insuring a building | ❌ No | ✅ Yes |
| Rebuilding after loss | ❌ No | ✅ Yes |
Why a Professional Insurance Valuation Matters
Your insurer relies on your provided sum insured when calculating your premiums — and your payout.
If that figure is too low and you suffer damage, the insurer applies the average clause. That means you only get a portion of your claim paid out.
A registered valuer:
- Inspects your property in person
- Calculates current rebuild costs using industry rates
- Adds the correct allowances for inflation and fees
- Prepares a valuation your insurer will accept
It’s a small investment that can save you hundreds of thousands of rands.
Real Case
A client recently asked me to check their insurance value. Their market value was R4.2 million, and they were insured for that amount. My report showed the rebuild cost was only R3.1 million.
They adjusted their policy and reduced their premium — without reducing their cover. Savings of over R1,000 a year, and now correctly covered.
Need an Insurance Valuation?
Don’t mix up what your property is worth with what it would cost to rebuild. These are different figures, for different purposes.
If you’re unsure whether your current sum insured is accurate, I can help with a detailed, insurer-accepted replacement valuation — so you can protect what matters with confidence.
Get in Touch and I can assist furhter!
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
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