THE REPLACEMENT COST OF BUILDINGS

With building insurance the onus is always on the property owner to make sure that the sum insured is not less than what it will actually cost your insurer to replace all fixed improvements on the property. Here is a suggestion on how to determine the current replacement cost:

1. measure the area of all buildings and all floors of buildings on the property in square metres;
2. ask a reputable building contractor to take your standard and quality of finishes, fixtures and fittings into account and to advise what it will cost per square metre to build your standard of building today;
3. multiply the contractor’s price per square metre [2] with the total square metres of your buildings [1] to get the total cost to rebuild your buildings today [3];
4. ask the contractor to advise what it will cost to rebuild outside improvements such as perimeter walls, gates, paving, driveways, outside entertainment areas, pool, garden features and so forth, and add this total [4] to the total to rebuild the buildings [3];
5. this is then the total cost to replace all improvements on the property [5];
6. but before building can commence, rubble will have to be removed and the land prepared for building purposes, the insurer will employ an architect to draft the plans for the new building, the plans will have to be approved by the local authority, and a project manager will have to be employed to oversee the whole project from start to finish. For all these aspects add 15% to the total [5];    
7. MAKE SURE VAT IS INCLUDED IN ALL ESTIMATES. 

Here are examples of such an exercise:

1 = 200m²; 2 = R7 000/m²; 3 = R1 400 000; 4 = R100 000; 5 = R1 500 000; 6 = R1 725 000

1 = 150m²; 2 = R6 000/m²; 3 = R900 000; 4 = R60 000; 5 = R960 000; 6 = R1 104 000

1 = 1200m²; 2 = R6 000/m²; 3 – R7 200 000; 4 = R40 000; 5 = R7 240 000; 6 = R8 326 000

Remember that building insurance is one of the lowest rated insurance risks. Therefore to be under-insured will save you very little, while it can cause a loss of thousands that you will have to pay from your own pocket when you have a claim.

Example: Costs to replace all improvements = R2 000 000, but insured for R1 500 000. This means only 75% of the risk is insured and the premium saving is between R30 and R100 per month. Then a geyser blows while you’re not there, flooding ceilings, discolouring walls and saturating fitted carpets. The cost to replace the geyser, ceilings, carpets and repainting walls come to R32 000 but the insurer will only pay 75% = R24 000. In this example you will have to pay R8 000 from your own pocket because you saved [very little] on premium. This is one example of many proving that only insurance companies benefit by under-insurance, not the insured. And the bigger the claim, the more the insurer saves and you lose … but only if you are under-insured. The insurers that we deal with do not split hairs on the accuracy of your estimate as long as it is reasonably close to the actual replacement cost. Therefore you can only benefit by obtaining an opinion from a contractor and doing the exercise to determine current replacement costs.  

Stick to the contract. The insurer is obliged to replace all if you insure for a reasonable estimate of the replacement costs. 

INSURANCE CLAIMS

NOTES ON REPORTING OF INCIDENTS

All motor collisions [whether of a minor nature or even when there is no own damage, or otherwise, whether you as the insured are guilty or not, and whether someone else, usually the third party, offers to pay for your damages] should be reported :  

[1] to the police immediately (the logic behind the immediacy of the report to the police is that it confirms one's bona fides, you're not trying to hide a drunken or unlicensed driver, sort of thing. It also links the incident to a specific date/time/place so that nobody else can abuse it for their own benefit, claiming for instance [falsely] that on another date and at a different place you or your driver hit a cyclist and drove off without stopping); 

[2] to your insurer within 30 days of the incident (for two reasons [a] to repair your own damages if more than the applicable excess and [b] to indemnify you against any claim by any third party including false claims such as mentioned above - this indemnity meaning that the insurer steps in and takes on any claim against you, either paying it if you were responsible or defending it if you were not, either way taking the problem, including legal charges and uncertainties out of your hands, free of charge).

There is absolutely no benefit in not reporting an incident, no saving of a premium and no safeguarding of a no-claim-bonus. By not reporting an incident you are forfeiting all the benefits that you have already been paying a premium for and you face the same risks as a person who is not insured.  

As our client all you have to remember, and do, is to phone us for free advice and assistance the  moment you become aware of an incident.

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