Many think after buying their first home that home insurance can come in time as it is a”low risk” immovable property. That is until one fateful day when a storm hits and damages part, or all of your home.
In light of the current devastation of the Johannesburg floods, we have put together a homeowner’s essential guide to insuring your home and your worldly belongings.
Insuring your home is not simply a once-off discussion, it requires constant updating should you buy new valuables, make renovations that increase the value of the property, or simply as a result of inflation.
3 Reasons You Need House Insurance
- Property coverage – Homeowners insurance covers the physical structure of your home and your personal property, if it gets damaged or destroyed.
- Liability coverage – This type of coverage is used by Airbnb for its hosts. It provides for if someone (not covered under your policy) is injured or killed. Or, if their property is damaged or destroyed while they’re on your property or adjacent to your property. A homeowners policy covers any personal legal responsibility. For example, if the branch of a tree in your property falls on a parked car on the street, you will be covered.
- To satisfy your mortgage bond lender – If you apply for a bond on your house, the lender will most likely request you take out insurance for as long as you have the bond. You will then have to list the lender on the mortgage policy.
Risks Covered By Home Insurance
- Fire, lightning, and explosion;
- Malicious damage;
- TV aerials, satellite dishes, and masts;
- Bursting, leaking, or overflowing pipes, water apparatus, or oil-fired heating apparatus;
- Storm, flood, wind, water, hail, or snow;
- Loss or damage to the private residence caused by impact;
- Theft or attempted theft;
- Gradual sinking of land (subsidence) and landslip of the land supporting the private residence; and
- Damage by wild baboons or monkeys.
Types of Home Insurance Coverage
- Coverage for the structure of your home
- Coverage for your personal belongings
- Liability protection
- Additional living expenses if you are temporarily unable to live in your home because of an insured disaster
Underinsuring Your House Can Be Devastating
The average homeowner’s property is underinsured by as much as 35% says Christelle Fourie-Colman, the Managing Director at MUA Insurance Acceptances.
“Property is perhaps one of the most difficult assets to determine a replacement value for, because a rebuild is dependent on so many varying factors,” she says.
HARD TRUTH: If a claim is received on a property that is underinsured (determined by the assessor), an “average clause” will be applied in order to protect the insurance company from underinsurance.
This, essentially, means you, as the homeowner, share the liability of the extent of the underinsurance.
The “average clause” principle is used throughout the short-term insurance industry and is explained in the terms and conditions of every policy.
If your home is underinsured by 35%, your insurer reduces the claim payout by the same percentage. And, you will have to make up the balance. If you are overinsured by a similar percentage, however, no similar calculation applies. You will not receive more than the claimed amount.
Confusing Retail Value And Replacement Value
The most common mistake consumers make with home insurance is to confuse replacement value with market value.
“A Victorian house in Parktown, with its original features intact, could easily cost more to rebuild than a swanky new development in Sandton,” says Fourie.
On the other hand, a cottage in Clifton might have a market value of R30 million. But, should you have to rebuild, for whatever reason, it will cost a fraction of that price tag. Why? Because market value is all about the area and location of the home.
“So, you could either find yourself unable to replace the house, in the original style, or you could pay inflated home insurance premiums for years without getting anything back,” says Fourie.
How Your Home Insurance Premium Is Calculated
- The cost to rebuild your home: As mentioned above, this may differ from the market value. An estimation on replacement costs, using information about your home and its contents, will need to be determined by you and your insurance agent.
- Is your home made of brick or wood? Brick and masonry houses usually have a lower premium as they are far less of a fire hazard.
- How close is your home to resources and services? This includes fire stations as well as the quality of your community’s fire protection services.
- The age and condition of your home: Older homes and homes in poor condition have higher premiums.
- The claims history of your neighbourhood: Insurers look at the claims history of homes in your area, and immediately next to you, to assess risk.
- Do you have a wood furnace or wood stove in the home? Fire hazard.
- Do you own high-risk outdoor amenities? These are amenities that could cause injuries such as a swimming pool, a trampoline or playground equipment.
- Do you have aggressive dogs? Insurers actually won’t see this in your favour as aggressive dogs put people on your property at risk of injury.