Your house or building must be insured for its replacement or rebuilding value, not its market value. The market value of your house or building is an indication of how much you can sell it for. It is influenced by various factors like location and crime rates. Its replacement value is how much it would cost to rebuild in the event of a total loss.

 

The replacement value is determined by building costs. The insurer calculates the building rate, which is the cost per square metre, to rebuild the house in a specific area. It is important to remember to include amounts for the swimming pool, paving or lapa in calculating a property's replacement value, if applicable. Most insurers will also add an amount - usually 10 or 15 percent of the rebuilding cost - to cover professional fees.

 

The cost of rebuilding a house reflects factors like the style, materials and cost of labour in the area. Avoid comparing your house to that of a friend in terms of, for example, the number of rooms, and then assuming that the rebuilding costs will be the same.

 

Therefore, you have to revise your policy at least annually to make sure that your cover remains adequate