Guide to Understanding the Property Valuation for Insurance

by  Adv. Priyanka Sampathy  




10 mins


Property Valuation for Insurance: Ensuring You're Covered Right

Have you insured your property with a valuable insurance provider? If not then you will be required to secure your most valuable asset by availing an apt insurance policy for your property by weighing all the pros and cons. You just need to avail the services of an expert to get the right kind of insurance for your property. 

What is Property Valuation?

Property Valuation as the name suggests is the technique or method used to understand the net worth of an individual’s property. Looking from the perspective of the insurance property valuation plays an important role because by getting the exact cost of the property valuation the right kind of suitable insurance to the property can be obtained by the individual.  

In the case of Property Valuation, an expert is appointed to value the property so that the owner can buy the most relevant property insurance for themselves. 

People also read: Is Khata Transfer and Property registration different?

What are the Principles of Property Valuation?

There are three principles that require an up-to-date Property Valuation and these principles are as:

  • People Looking for Home Loans: Property Valuation is required for people who are looking to take home loans from the banks.
  • Sellers: The Sellers require the Property Valuation to understand the market valuation of their property so that it can be sold off for a good amount of money. 
  • Buyers: Buyers require the Property Valuation to understand if what they are paying on the property is worth the price or not.
  • Investors: Investors need Property Valuation to truly understand the fair market value and the returns on their investment. 

Underinsured properties can lead to financial hardship in case of a claim. Our expert property valuations ensure your property is valued accurately, guaranteeing you receive the appropriate insurance coverage.

Factors Affecting Property Valuation

There are so many factors that prove to be the backbone of the Property Valuation which need to be kept in mind while arriving at the true Property Valuation and should also not be missed. These factors are as follows:

  • Per Capita Income of the Individuals: One of the important factors that constitute property valuation is the per capita of the individuals. If the income-generating capacity of the individuals is on the higher side then the valuation of the property will be higher. 
  • Property Demand: If the demand for the property in the market is on the higher side and the supply on lower then in such a case the valuation of the property will be on the higher side and the condition will be different when the demand for the property is lower and supply is on the higher side then the valuation of the property will be on the lower side.
  • Property Location: If the location of the property is in an area that is highly developed then the value of the property will be higher and if the property is situated in a rural or small town that is not much developed in such a circumstance property valuation will be lower. 
  • Infrastructure: Infrastructure plays an important role in property valuation if infrastructure is well-developed and there are well facilities available on the property the valuation of the property will be higher and if the infrastructure is not sufficiently developed then the property valuation will be on the lower end. 
  • Government Policies: Various affordable housing schemes have been developed by the government to provide affordable housing to poor people. This affordable housing scheme decides the property valuation. 
  • Property Structure: The structure of the property also affects the Property Valuation. The valuation of the property depends upon the quality of the material used in the building, its size, the expenses of labour, etc. Also, physical attributes of the structure will also be taken into consideration such as its layout, design, roof coverings, height of the building, etc. 

People also read: Know difference between Valuation and Market Price

Who carries the Property Valuation?

Usually, the property valuers or surveyors recognised by the Institute of Valuers perform the Property Valuation. These valuers/surveyors are appointed by the State Government. Valuation is funded either by the Sellers or Lenders as the case may be. These valuers draft a Valuation report that incorporates: 

  • Location of the property 
  • Number of the rooms
  • Boundaries
  • Measurements of the property 
  • Condition of the property
  • Structural Defect in the property 
  • Landscaping
  • Rights and Liabilities, etc. 

The Concept of Underinsurance 

As its name suggests to us this is the concept where the Property Valuation is undervalued. There has been an established rule that the insurance of the property is dependent totally upon the property valuation therefore it becomes essential to have the right valuation of the property to choose and go for the right kind of property insurance by the homeowner. 

The reason behind choosing insurance for the property is to save the homeowner for the cost of rebuilding and repairing the whole property, if the property is damaged by way of theft, fire, flood, earthquake, terrorism, etc. 

Factors contributing to UnderInsurance 

Some factors are proportional to making the insurance coverage of the property undervalued. It is advised by the relevant persons in the industry to keep the insurance up to date so that no burden lies on the pocket of the homeowner if any mishap takes place. These factors run as:

  • Reassessing: At times when the homeowner fails to regularly do the Property Valuations it becomes difficult to keep the insurance up-to-date hence resulting in making a hole in the pocket of the homeowner if any damages to the property are done. 
  • Market Conditions: Sometimes altogether ignoring the market conditions ranging from inflation, changes in the economic conditions, and improvements in the property may result in the property being valued at an undervaluation thereby decreasing the value of the property insurance. 

People also read: How does the process of Business Valuation work

Perks of Accurate Property Valuation 

Accurate Property Valuation contributes to a great deal for Sellers, Buyers, Investors, and Home Loan seekers. The importance of accurate property valuation gives them the advantage of:

  • Loan Amounts: With the help of accurate property valuation a good deal in obtaining the loan can be availed.
  • Repayment: Also, with a good property valuation repayment of the principal sum and interest on the loan becomes easier.

Importance of Property Valuation in Property Insurance 

Property Valuation is the true judging and specifying element of Property Insurance a Property Valuation not only tells the condition of the property but also gives its true picture in terms of location, size, quality, and market conditions. 

With the help of updated Property Valuation, the most suitable Property Insurance can be obtained. If the Property Valuation is an outdated one it becomes difficult to get the claim of the full money which is required to rebuild or renovate the property in case of any mishap. 

Don't settle for generic valuations that might undervalue your property. Our team of certified appraisers utilizes industry-standard methods to deliver accurate and defensible valuations, maximizing your insurance benefits.

Methods of Property Valuation for Insurance

As we have discussed the exact Property Valuation for getting a whole lot of benefits of Property Insurance. There are some methods followed by the insurance companies which are also mentioned on the insurance policies to calculate the value of the claim. These methods are as follows:

Replacement Cost

Replacement Cost is the property valuation method that is used to assess the replacement cost of the property. It only takes into account the amount that will be required to replace or rebuild the building if it is destroyed due to any of the other factors. Replacement is the replacement of the materials of the building which will be of the same quality as were installed previously in the building. 

The most important perk offered by this Valuation method is that it does not take into account the depreciation of the property because it never accounts for the value of the land; it is only focused on the building material or the cost of the labor to replace or rebuild the building. 

For Instance. If a person named B bought a fire insurance policy worth Rs. 80 lakhs to protect their office premises three years ago. Last month the property caught fire and the office premises are required to be rebuilt. The Insurance Policy of B is based on the replacement cost so the current value of the property is taken into consideration and the claims are settled accordingly. 

Actual Cash Value 

As we have discussed in the Replacement Cost method, the Actual Cash Value formula for Property and Insurance Valuation is the same as that of the Replacement Cost just the difference between these two is that the Actual Cash Value deducts depreciation applied to the building to the value that comes in for rebuilding or replacing the building. 

With the Actual Cash Value system the property is replaced or rebuilt but the depreciation of the property over the years will also get deducted from the amount of claim. This is the reason that makes the Actual Cash Value method a cheaper one as compared to the Replacement Cost method. 

For Instance: Two years ago Ms. C bought a mobile phone worth Rs. 50,000. The life span of the mobile phone was settled by the Insurer to be 5 years. The method of settlement of claims was decided to be Actual Cash Value. This is how it should be calculated if the mobile phone is damaged for any reason:

Applicable Depreciation in % = Remaining life of the phone/Useful life

Applicable Depreciation in % = 3/5  = 60%

Actual Cash Value= 50,000 *60% = Rs. 30,000

Rs. 30,000 is the amount that will be paid as the claim to Ms C 

Fixed Value Replacement Cost

This method of insurance can be understood by its name. In this method of valuation for insurance on the property, the insurer fixed the cost of the property which is not eligible to appreciate or depreciate at any cost. 

In simpler words, it can be ascertained that the value of the property cannot be influenced by any factors prevalent in society. The value is fixed at the time when the insurance policy is granted. 

For Instance: Ms Diya has a boutique so she decides to insure her work by taking property insurance which covers all the unforeseen circumstances based on Fixed Value Replacement Cost. This means that the insurer will set the fixed price of each item which is not supposed to increase and decrease at any moment and if any unforeseen circumstance happens Ms. Diya will get the exact amount of fixed price as the claim. 

Agreed Value 

This method of Property Valuation is rarely used and it is believed that whenever this is available one should go for it because of the perks involved. In this type of Property Valuation the Value of the property structure is already agreed between the building owner and the insurance company before the insurance was put in place. This value is pre-determined and this is why this method is considered to be the simplest one. 

For Instance: There is an old damaged building with lots of trees and damaged doors and windows. In this kind of situation getting to the actual worth of the building is a tedious task therefore already agreeing to the value of the building with this valuation method gets an added advantage on the table. 

Market Value 

Market Value method of Property Valuation as the name depicts is a valuation method that gives the market value of the property as of the date of the valuation. It considers various market conditions and factors to arrive at the true market valuation. The list of these market conditions ranges from location, rent, state condition of the real estate market, etc. 

People also read: Valuation under Demerger Explained

Errors to avoid while Insuring the Property

To avail the most benefits of the insurance policy for the property some errors are required to be kept at bay and these are as follows:

  • Up-to-date Property Valuation: The most important element in availing the most benefits of the insurance policy is to keep the valuation of the property updated so that the claim of the property can be adjusted and used in such a manner as not to create any kind of hole in the pocket of the buyer/homeowner. 
  • Understanding the Insurance Policy: The homeowner/buyer must understand the insurance policy that they are being purchased for the property. It is important to understand the coverage provided by the insurance provider for rebuilding or replacing the property. 
  • Updating the Property Valuation: As we have already discussed about the importance of keeping the valuation of the property updated it is essential to keep the property fully insured of any unforeseen circumstances. 
  • Conveying the updation to the Insurance Provider: It is important to convey the periodical Property Valuation and any kind of updates in the property to the Insurance Providers to keep your property insurance updated. 

Knowing your property's true value empowers you to secure the right insurance coverage. Our detailed property valuation reports provide peace of mind, ensuring you're prepared for any unforeseen event.


Property Valuation is an important aspect of the insurance of the property in order to reap the actual benefits of the insurance and to safeguard the interests of not only the homeowners of the property but also the incoming homebuyer. 


Q1. What is the formula for Property Valuation?

Ans1. The Gross Rent Multiplier method is used to determine the market value of the property 

Q2. Why is Valuation important in Insurance?

Ans2. Valuation allows the Insurance companies to charge the exact premium in case of any mishappenings on the property. 

Q3. Who pays for Valuation?

Ans3. Usually for the Valuation the property owner/buyer is required to pay the Valuation money. 

Q4. What is the Valuation of a Property?

Ans4. Property Valuation is a method for assessing the net-worth of the property by considering all the relevant factors. 

Q5. What is the Valuation Period for Insurance?
Ans5. It is the period within which the Valuation Report is required to be filed for the updation of the insurance records.

Waiting for a valuation report can delay your insurance coverage. We offer a streamlined process with fast turnaround times, ensuring you obtain a reliable property valuation for insurance without unnecessary delays.

Adv. Priyanka Sampathy

Adv. Priyanka Sampathy


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Priyanka Sampathy is a legal consultant who prioritises ethical and professional conduct while striving to achieve desired outcomes. With over 15 years of independent practice, she has significant expertise in handling legal cases. Her exceptional communication skills enable her to express arguments in a clear and persuasive manner, both in writing and verbally, in Hindi, English, and Telugu.

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