How replacement value is estimated
Building cost = floor area × rebuilding cost per m² + outbuildings and extras Replacement value = building cost × (1 + professional fees % + debris removal %) Average clause payout = loss × sum insured ÷ replacement value
The fee and debris percentages are your assumptions — check what your policy includes. Review the sum insured every year as building costs rise.
Worked example
180 m² house at R12 000/m² to rebuild, insured for R1.8 million
Rebuilding plus outbuildings, fees and debris removal comes to about R2.8 million, so a R1.8 million sum insured leaves the home significantly underinsured. The building rate here is an example — get one from a builder or quantity surveyor.
You may be underinsured by about R1 019 700. With an average clause, even partial claims are reduced in proportion.
Replacement value
- Main building (180 m² × R12 000)
- R2 160 000
- Outbuildings and extras
- R250 000
- Professional fees Your assumption
- R289 200
- Demolition and debris removal Your assumption
- R120 500
- Suggested sum insured
- R2 819 700
Frequently asked questions
Should I insure my house for its market value?
No. Insure for the cost of rebuilding it. Market value includes the land, which is not destroyed in a fire or flood, and rebuilding can cost more or less than the market price.
What is the average clause?
If you are underinsured, many insurers reduce every claim in proportion. If your home is insured for half its replacement value, a R100 000 claim may pay only R50 000.
Where do I find the rebuilding cost per square metre?
Ask a builder or quantity surveyor in your area. Costs vary greatly with finishes and location. Balawise does not publish building rates it has not verified.
Do I need homeowners insurance if I have a bond?
Yes. Banks require building insurance on bonded properties. You can usually choose your own insurer instead of the bank’s, provided the cover meets the bank’s requirements.