Overview
In South Africa, building insurance protects landlords' residential, commercial, or body corporate properties, focusing on fixed structure like walls, roofs, outbuildings, garages, pools, gates, boundary walls, fixtures, fittings and paved areas. Movable items are excluded.
Cover Basics
These are general inclusions in most building insurance policies:
Core
Fire and storm damage as the primary risks.
Malicious damage, theft or attempted theft relating to the building, such as forced doors during break-ins.
Revenue
Alternative accommodation or loss of rental income if the building becomes uninhabitable after an insured event.
Liability
Property owners liability is usually an automatic inclusion.
This covers legal liability for bodily injury to others or damage to their property arising from ownership of the building, such as visitor slipping on the premises.
Other
Forcible and violent theft of fixtures and fittings;
Water damage from burst pipes, overflowing or exploding geysers;
Subsidence and landslip from land movement or soil shifts are often included, though with limits, excesses or exclusions due to the nature of the risk.
Getting Your Sums Insured Right
The Baseline
The sum insured forms the backbone of your policy and must reflect the true cost of rebuilding your property from scratch, not its market value that shifts with buyer sentiment or location.
Professional annual valuations are essential as building costs in South Africa do not stand still, they fluctuate with economic indicators.
Escalation Clause
Escalation clauses are important inclusions as they increase your sum insured during the insurance period and are often tied to a construction cost indexes, which track rebuilding costs. they might add 5 to 10 percent yearly, bridging gaps between valuations, but they are no substitute for an annual professional sum insured valuation.
Include Everything in Your Calculation
To avoid Underinsurance (see below), include every item in the definition of building in your value at risk sum insured calculation. Do not stop at the main building, tally all the assets listed in the definition of building, including the outbuildings, the garage, gates, boundary walls, fixtures like built in cupboards, fittings, paved areas.
Land is not insurable
Land is not insurable because it cannot be damaged or destroyed in the same way that buildings can be. Insurance is designed around replacement cost principles. Since land cannot be replaced or rebuilt, there is no meaningful way to calculate or assign an insurance value for it.
The Proportional Underinsurance Challenge
Why This Rule Exists
Underinsurance triggers proportional financial penalties, it is also known as the principle of Average in insurance circles. Why does it exist? It stems from a fundamental fairness in risk sharing. Insurance policies require you to cover the full value at risk, as detailed in your policy. If you insure only part of it, you are effectively self insuring the rest, so claims get proportionally adjusted to prevent people from underpaying premiums, while expecting full payouts. It encourages accurate cover and keeps the system fair and sustainable for everyone.
In practice, if your policy sum insured falls short by 20 percent, insurers pay only 80 percent of your loss. To avoid it, ensure you, as a minimum, conduct an annual professional valuation to determine the correct rebuilding cost.
Avoid the Trap, Include These Costs:
- Escalation percentages for interim building increases,
- Professional fees for architects, structural enigineers and all other building consultant costs,
- VAT,
- Demoliition and debris removal costs,
- Claim preparation costs
Types of Building Insurance
Homeowners insurance: for owner occupied residences, including holiday homes
Buildings Combined: policies for buildings owned by businesses and used commercially
Sectional Title or Body Corporate insurance: covers buildings governed by the Sectional Titles Act, comprising the common areas plus aggregated unit sums insured of all the individual unit owners
Cover Extensions That Enhance Basic Cover
- Debris removal and demolition for site clearance;
- Damage caused by thieves (not related to malicious damage);
- Power surge damage to wired electronics;
- Escalation percentage(s) (sum insured increases during insurance period and during multi year rebuilds);
- Professional fees (architects, engineers, municipal submissions)
- SASRIA cover for riots, strikes and civil unrest (excluded from standard policies).
Key Exclusions and Misconceptions
Some Key Exclusions:
- Gradual wear and tear;
- Poor maintenance and lack of reasonable care;
- Non standard construction (thatch, asbestos etc) unless accepted by insurers;
- Construction defects or faulty workmanship;
- Deliberate tenant damage;
- Non compliance with the National Building Regulations (NBR).
The Notification Rule: Change of tenancy from low risk (office tenancy) to high risk (manufacturing tenancy) without telling your insurer can void your policy entirely.
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