Home insurance: Do you really know what you're covered for?
Category Buyer Advice
Knowing what your home insurance covers is vital. Many homeowners think they're insured for more than they actually are. Make sure you're not one of them by understanding the basics of house insurance.
Whether you already own property or you're a potential homeowner, you need to know whether you're only covered for the necessities in the event of an incident or whether all the fixtures and fittings you invested in are also insured.
The biggest to keep in mind when you're considering homeowners insurance is whether your property should be insured for its market value or its replacement value.
If it sounds complicated, ask yourself this instead:
- Do you only want to insure your home for the amount you would typically get if it were sold,
- or do you want insurance that covers the little extras you've invested in your property, such as the fittings and fixtures that make your house a home?
Why having the right home insurance is important
Many homeowners may never have to claim. But in the unhappy event that you do, you don't want any surprises in the claims process - especially not during a time of crisis.
Being underinsured leaves you open for exactly that risk. You might find out too late that you can only claim for certain aspects of your home.
Luckily, it's easy to check whether you're properly insured and switch to the best option if necessary. There are plenty of credible home insurance companies in South Africa that offer competitive prices.
It also doesn't have to be a costly exercise. Switching to a new insurer or policy often carries little to no extra once-off fees.
What type of house insurance do you need?
When you insure your property, you're covered in the event of damage to your house itself. It's different from insuring the contents of your home, which covers the movable furniture and appliances in your place.
But your home insurance covers your building, and is offered as one of two types of coverage:
- Insurance for the market value of your house
- Cover for the replacement cost of your property
Insuring the market value of your home
When your home insurance covers the market value of your property, you're insured for the amount that your house is worth if you had to sell it.
"If your houseowners or building insurance is with the bond holder, it is most likely that the insured amount is not based on the current replacement value," says Andrew Potgieter, an insurance expert and intern estate agent for NS Property Solutions.
"The renewal process is automatic and the responsibility is up to the insured or homeowner to ensure the correct insured value."
It's also important to note that the value of a house is dependent on the location of your property.
For example, the value of a 200m² home in Beaufort Wes differs from the same sized house in Brackenfell or Constantia. "The cost of building both homes may be exactly the same though, keeping in mind the current rebuilding and replacement costs of the structure, fixtures and fittings," notes Potgieter.
Coverage for the replacement value of your property
Replacement value is the cost of replacing both the structure and all fixtures and fittings of a property. This includes the cost of paving, your swimming pool, air conditioners and electric fence, to name a few.
It's vital to consider the monetary worth of all these extras seriously. Would an insurance pay out of the market value of your home allow you to rebuild your house and replace all these extra items in a disaster?
If not, then you need comprehensive insurance for the replacement value of your property.
What happens when you don't have the right home insurance?
A sad example of the results of not having the right property coverage is what happened with many houses that were destroyed by the Knysna fires in the Western Cape in 2017.
According to Potgieter, up to 50% of the houses destroyed were underinsured, in which case the dreaded 'average' clause applied. Many homeowners weren't able to replace everything they had lost because the market value of the properties was less than the replacement cost.
How to check your house insurance and change it, if necessary
First, check your insurance policy document or simply phone your insurer to find out whether you're covered for everything that's important to you.
Keep in mind that a traditional homeowner's policy typically covers:
- Fire
- Special Perils (Storm, Wind, Water, Hail & Snow)
- Earthquake
- Thunder & Lightning
- Malicious damage
Comprehensive cover for all risks includes:
- Fire
- Special Perils (Storm, Wind, Water, Hail & Snow)
- Earthquake
- Thunder & Lightning
- Malicious damage
- Accidental, mechanical, electrical and electronic failure of fixtures and fittings
Potgieter also notes that homeowners may be surprised to find that comprehensive house insurance isn't significantly more expensive.
If you find that you're not covered for everything that's important to you, all you need to do is reach out to an insurance broker. Make sure you have your current insurance policy document ready and any information about claims you made in the last few years.
Feel free to get quotes from several insurance companies and ask them to explain exactly what you'll be covered for.
If you're a homeowner, then you're actually also a property investor - and it's important to think like one. As an investor, you need to ensure your greatest financial asset - your house - is properly protected.
But more than that, having the right home insurance helps you live without fear that things could go wrong and allows you to enjoy your property investment to the full.
Want more guidance along your property journey? Contact Andrew at andrew@nspropertysolutions.co.za or 082 555 2210.
You can also check out our advice on what to do if you're struggling to repay your bond in 2020. Read our article on What to do if you're unable to pay your home loan.
We're here to guide you on your journey whether you're buying, selling or investing. Check out our properties or get in touch with us today to get started.
Author: NS Property Solutions