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:
- measure the area of all buildings and all floors of buildings on the property in square metres;
- 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;
- 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];
- 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];
- this is then the total cost to replace all improvements on the property [5];
- 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];
- 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.
