The Pitfalls of Underinsurance – Building


Your home is likely to be your largest investment you have made and somewhere you are loved, respected, and cared for…

Your happy place. When you look at it from the outside, home is just a house, a building.  But on the inside, it is a lot more than brick and tile.
The saying “Home is where the heart is” says it all.  Hence updating your insurance cover regularly is very important to avoid average better known as
underinsurance.Yet, it can be difficult to know for sure just how much cover you require.  Many property estate agents offer free home valuations, which can be a useful tool in assessing how much insurance coverage you may need…

BUT BEWARE… Limiting coverage to resale value alone could leave you dangerously uninsured!

When you purchase a comprehensive homeowners insurance policy, you are required to provide the insurers with the replacement value of the property that you want to insure. This value or amount is known as “the sum insured”. This amount should be the current cost of rebuilding your property should it be damaged or destroyed by an insured event such as fire, flood, storm, explosion.

At times, there may be a discrepancy between the replacement cost of the property and the amount of the sum insured. If the replacement cost of the property is higher than the sum insured amount you provided; this difference is the amount by which your property will be underinsured and consequently, in the event of a loss, the amount received from your insurers, will not be enough to pay for the value of the loss.

Insure your property/building at replacement value, not market value – the property/buildings sum insured must cover the cost of replacing the actual structural building, including outbuildings, carports, paths, driveways, swimming pool, walls, fences, gates, generators and solar panels, should they be totally destroyed.  Remember there is a difference between the market value, which is what you would get for your home if you sold it on the open market, versus what it would cost to completely rebuild it to the same standard at current building costs if it burned to the ground.  You also need to factor in ‘hidden’ costs such as demolition, rubble removal and new building plans.

You may say you are paying a monthly insurance premium.
However, your monthly insurance premium may not cover you adequately in the event of damage or loss.

What happens if you have a claim?

An Example will be Mr X has suffered damages to this property due to a storm.  His house is insured for R500 000, but the correct rebuilding value is R1 000 000 (rebuilding cost).  This means that Mr X is 50% underinsured. Mr X has submitted a claim for R100 000 to repair the damaged property.  Due to him being underinsured by 50%, the insurer will calculate his claim settlement as indicated in the example below and therefore Mr X will only
receive R50 000 (50%) of his claim amount.

How to prevent this from happening?

Update your sum insured regularly – rebuilding costs change over time, especially on appreciating assets like property. This could be due to inflationary factors, as well as exchange rates which impact the replacement values on imported goods such as fixtures and fittings.  Your property is measured in square meters, with the average rate per square meter being available at the website STATSSA and at various municipalities. Cost per square meter can be gleaned from the architect’s plans for the building, while the average rates can be accessed at the Alternatively, you may appoint a professional building valuator to value your property at a fee.