Buildings Insurance Guide

How to work out your buildings insurance sum insured

Written by Lerato Molefe Personal Insurance Writer Reviewed by Nomsa Dlamini RE5 qualified · 12 years in short-term insurance Updated 28 July 2026 Our editorial standards →

How do I work out the right sum insured for buildings insurance?

Base your sum insured on the cost to rebuild your home from scratch - the reinstatement or replacement value - not its market value or municipal valuation. Include the main structure, permanent fixtures, outbuildings, boundary walls, pool and paving, plus professional fees and rubble removal. If you insure for less than the full rebuild cost, the average clause reduces your payout in the same proportion, so getting this figure right is the most important decision on the policy.

Key takeaways

Insure for the rebuild (reinstatement) cost, never the market or municipal value.
Market value includes land and location; buildings cover only pays to rebuild the structure.
Include outbuildings, walls, pool, paving, professional fees and rubble removal.
Under-insuring triggers the average clause, which cuts your payout proportionally.
Update the sum insured after renovations and let it escalate each year for inflation.

Rebuild cost, not market value

The most common - and most expensive - mistake is insuring a home for what it would sell for. Market value includes the land, the suburb and demand, none of which is destroyed in a fire or storm. Buildings insurance pays to rebuild, so your sum insured must reflect construction costs: materials, labour, and the price of putting the same home back up today. In a sought-after area the rebuild cost can be well below the market price; on an older or unusual home it can be higher. Either way, the two figures are rarely the same.

What to include in the sum insured

The rebuild figure should cover everything that forms part of the building, not just the house:

The main structure, roof and permanent fixtures such as fitted kitchens, built-in cupboards and geysers
Outbuildings, garages, cottages, boundary walls, gates and motors
Swimming pool, paving, driveways and fixed water features
A permanently mounted solar and backup power system
Demolition and rubble removal after a total loss
Professional fees - architects, engineers and municipal plan approvals - and the cost of rebuilding to current building regulations

The average clause and under-insurance

The average clause is why under-insurance hurts. If your home would cost R2 million to rebuild but you insure it for R1 million, you are carrying half the risk yourself. After a claim - even a partial one - the insurer applies "average" and pays only that same proportion. A R400 000 storm claim on a home insured at half its rebuild cost could settle at around R200 000, less the excess. Insuring for the full replacement value is the only way to be paid in full.

How to calculate the figure

For accuracy, ask a professional valuer or quantity surveyor for a replacement-cost (not market) valuation, especially on larger or older homes. For a solid estimate you can use the buildings rebuild calculator or an insurer's guide, which apply a per-square-metre rebuild rate for your construction type and area. See our detailed guide to buildings replacement value for a step-by-step approach. Whatever method you use, err towards the true rebuild cost rather than a round number that feels affordable.

Keeping it up to date

Rebuild costs rise with building-material and labour inflation, so a figure that was right three years ago is probably too low now. Most policies apply an annual escalation to keep pace, but check the rate is realistic. Crucially, update the sum insured whenever you renovate, extend, add a pool or install solar - those improvements raise the rebuild cost, and failing to declare them can leave you under-insured and exposed to the average clause exactly when you claim.

Frequently asked questions

Should buildings insurance be based on market value or rebuild cost?

Rebuild cost, always. Market value includes the land and location, which cannot be destroyed. Buildings insurance pays to rebuild the structure, so your sum insured must reflect current construction costs, not what the property would sell for.

What is the average clause in buildings insurance?

The average clause is an under-insurance penalty. If you insure your home for less than its full rebuild cost, the insurer pays claims in the same proportion. Insure for half the rebuild value and even a partial claim is settled at roughly half, less the excess.

What should be included in the sum insured?

Include the main structure, permanent fixtures, outbuildings, boundary walls, gates, pool, paving and any fixed solar system, plus demolition and rubble removal and professional fees. It should equal the full cost to rebuild the entire property to current standards.

How often should I update my sum insured?

Review it at least once a year and after any renovation, extension, pool or solar installation. Building costs rise over time, so most policies apply an annual escalation - check the rate keeps pace with real rebuild-cost inflation so you are not left under-insured.

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