It cannot be repeated enough that, although valuing a building or content for insurance purposes can be a tricky business, it is important for the insured to determine accurate valuations and insured amounts to ensure adequate coverage in the event of a loss.
For contents, taking an inventory of all items and their current market value is a good approach. It’s important to remember to value items as new-for-old, which means the replacement value of an item as if it were new at the time of loss, regardless of its age or condition.
When it comes to valuing the building, it is recommended to consult with a reputable builder in the area to determine the per square meter building cost. This can serve as a good starting point for calculating the total value of the building. However, it is important to consider additional costs such as demolishing and rubble removal, professional fees for new plans, and council approval fees. The building includes border walls, paving, swimming pools, lapa’s and fishponds. Retaining walls must be discussed, as it is not automatically covered.
While it may be tempting to rely on a thumb-suck estimate, it is important to remember that inaccuracies could result in underinsurance or over insurance, both of which can have serious financial consequences. Hiring a professional to do a valuation is the best option for ensuring accurate and adequate coverage.
An accurate valuation is also crucial in preventing the application of “average” in the event of a loss. “Average” is a provision in insurance policies that may be applied when the sum insured is found to be less than the actual value of the property at the time of loss. This means that the insurer will only pay out a proportionate amount of the claim based on the underinsured value of the property.
For example, if a property is insured for R500,000, but its actual value is R1,000,000, and it sustains damage worth R100,000, the insurer will only pay out R50,000 (50% of the claim) if the policy has an “average” clause. This is because the property was only insured for half of its actual value.
By obtaining an accurate valuation of the property, the insured can avoid the application of “average” and ensure that they are adequately covered for the full value of the property. This is important to prevent financial losses in the event of a loss or damage to the property.