Malaysia Insurance Law - Property Insurance Law

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INSURANCE LAW - Property Insurance

Related Topics : Auto Insurance . Business Insurance . Disability Insurance . Health Insurance . Insurer's Bad Faith . Life Insurance Law . Property Insurance

Valuation For Buildings

Insured on Indemnity or Reinstatement basis

The valuation of a building for insurance purposes should be based on the Rebuilding Cost and not the "real estate" value. This is because the "real estate" value includes the land which generally needs not be insured.

One way to do this is to get a contractor to quote the cost to rebuild your house exactly as it is now (i.e. like for like), in the event that it is totally destroyed.

For example, if the rebuilding cost quoted is RM90 per square foot and the built-up area of your building is 1,200 square feet, then the rebuilding cost would be RM108,000 (i.e. 1,200X90). Please refer to Rebuilding Cost. This figure would serve as the basic value.

Certain adjustments may have to be made to this basic value, depending on the Basis of insurance you have chosen - whether Indemnity Basis or Reinstatement Value Basis. For example :

If you choose to insure on the Indemnity Basis (i.e. old for old) - deductions to the basic value would have to be made for wear and tear based on the age of the building, i.e. RM 132,000 less, say 20%=RM105,600. This figure may also need to be adjusted to allow for any anticipated increase or decrease in the value of the building during the period of insurance, say, RM105,600 + 5%=RM110,880.

If the insurance is arranged on the Reinstatement Value Basis (i.e. new for old), no deductions need to be made for wear and tear. But it would be wise to make some allowance for anticipated increase or decrease in value during the insurance year and also the period of reinstatement, say, RM132,000 + 5% + 7% = RM148,302.

If you have any doubts about whether the valuation is adequate for insurance purposes, seek help from a professional valuer.

Last Updated : ©1999-2000
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