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The Importance of Insurance Replacement Valuations

Updated: Aug 20, 2020

Ensuring you have the correct building replacement cost selected on your insurance policy is critical - in fact it's probably the single most important section for strata and commercial property. If a major claim occurs and your property is under insured, the insurer is fully with in their rights to pay out only a fraction of the total damage value.




What is an Insurance Replacement Valuation?

Put simply, the when buying or selling any type of property you refer to the market price of the building and land.

When it comes to an insurance valuation, you must establish the cost to reinstate and/or replace only the structural aspect of the land e.g. building, retaining walls, carports etc.


This figure must be accurate.


The market price or value of a building can be higher or lower than the replacement value depending on a number of factors including location, accessibility and materials.



Why is an Accurate Insurance Replacement Valuation Important?

There is a clause in your insurance policy called the co-insurance or average clause

which requires you to accurately reflect the true insurance value of your property.


If not implemented, the insurer is within their rights to greatly reduce your claim

payment should a loss occur.


The insured value is required to be no less than (commonly) 80% of it’s true replacement cost.



What’s Included in an Insurance Replacement Valuation?


- Demolition following a loss Removal of debris

- Estimated current construction costs

- Access and location

- Provision for cost escalation during rebuild period

- Professional fees


Access to high density locations can really slow the rebuild process down and increase rebuild cost - all of which needs to be factored into the insurance replacement valuation.





It’s extremely important to factor in potential Rental Income lost during the rebuild (indemnity) period, recommended to be no less than 18 – 24 months on the policy, another topic Adapt will blog on shortly..

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