Quick answer: The replacement valuation is an estimate of what it would cost to rebuild or reinstate the property, while the sum insured is the amount shown on the policy schedule. They should be reviewed together.
What is a replacement valuation?
- It is a professional estimate of the cost to reinstate buildings and common property after a major loss.
- It may include demolition, professional fees, escalation and other reinstatement-related costs depending on the valuation basis.
- It should be updated regularly because construction costs and scheme improvements change.
What is the sum insured?
- The sum insured is the value recorded on the insurance schedule.
- It is the value used by the insurer to calculate cover and premium.
- If the sum insured is too low, the scheme may face underinsurance problems after a major claim.
Why the two values drift apart
- Building cost inflation.
- New structures, security upgrades, solar, pumps or lift upgrades.
- Old valuations that were not updated.
- Relying only on annual percentage increases without checking the actual property.
Trustee checklist
- Ask when the last valuation was done.
- Check whether all common property and improvements are included.
- Compare the valuation to the current schedule.
- Record the trustee decision on any adjustment to the sum insured.
- Keep the valuation document with the insurance file.
When to prioritise a valuation
- After major renovations or additions.
- If the scheme has not been valued for several years.
- If there is a large difference between market value assumptions and rebuild cost.
- Before renewal where trustees are unsure about adequacy of cover.
This page is general information for trustees and managing agents. It is not legal advice and does not replace the policy wording, scheme rules or professional advice for a specific claim or renewal.
Frequently asked questions
Is market value the same as replacement value?
No. Market value is what a property may sell for, while replacement value is linked to rebuilding or reinstatement cost.
Can trustees just increase the sum insured annually?
Annual increases help, but they do not replace a proper valuation where the current figure may be wrong.
Who should arrange the valuation?
The trustees or managing agent can arrange it, often with input from the insurance broker.