Do you have sufficient homeowner’s insurance?

When you apply for a bond, the bank will always insist on homeowner’s insurance before granting a loan. Often the bank will add its own homeowner’s insurance onto the home loan account. A lot of people do not know that the homeowner is free to insure their home with any insurer of their choice, as long as they can produce proof of such insurance when applying for a home loan. Once the home loan is settled in full homeowner’s insurance is no longer legally required but this exposes the owner to enormous risk.

Replacement cost
Your home - and its contents - should always be insured to the full replacement cost, to avoid the risks of loss or damage due to theft, burglary, fire, flooding and more. More importantly, your home should be insured at the current replacement value to ensure you have sufficient insurance should something happen. This replacement value needs to be calculated regularly – at least annually – so that the value is always relevant.

Comprehensive homeowner’s insurance must include every part of the property including all the walls, the garage, swimming pool, the driveway, etc. An experienced and reputable valuer can provide accurate and updated insurance replacement costs based on your individual circumstances. This will include the location of your home, building materials, its design, finishes and all other factors that need to be taken into account.

Your homeowner’s insurance, however, does not include the balance of your home loan or the loss of any personal belongings.

Are you over-or under-insured?
It is unnecessary to purchase insurance to a value higher than the current replacement value, as the insurance company will only settle the amount equal to the most recently updated replacement value of the home. When homeowner’s insurance exceeds the replacement value, the homeowner is over-insured and pays a higher premium than necessary.

When the homeowner does not have enough cover, as the sum insured is less than the replacement value of the home, the homeowner is under-insured and pays a lower premium than required for comprehensive insurance. This means there is a shortfall between the insured amount and the property value which will result in the homeowner paying the balance from their own pocket in the event of a claim.

Different types of insurance

There are various types of insurance relating to personal insurance; here we feature three important types:

  1. Building insurance
    This type of insurance provides cover for the building structure which can sometimes also be extended to cover other structures on the property such as garages, flatlets, etc. The structures on a property are at risk of loss or damage as a result of theft, fire, storms, etc. All fixtures and fittings to the building need to be insured.

  2. Contents insurance
    This provides cover for all moveable assets inside the building structure including home appliances, furniture, curtains, clothing, etc. It does NOT cover fitted carpets, taps or other fittings that are fixed to the property. Contents insurance covers loss or damage as a result of theft, burglary, accidents, malicious damage as well as fire, storm and flood damage.

  3. Personal valuable insurance
    This covers all personal belongings such as cell phones, laptops, bicycles, surfboards, clothing, handbags, jewellery and so forth. For non-specified items, the insurer will provide cover up to a specified amount for a standard list of general items under the unspecified All Risk section which will be limited to a certain amount. The specified items policy allows you to stipulate high-value items such as cell phones and laptops for cover up to an amount specified in your policy.

Benefits and exclusions of homeowner’s insurance
There are many benefits to homeowner’s insurance including the peace of mind you get from knowing you are covered for unfortunate events. The main benefits include cover for loss or damage in case of burglary, accidents or disaster without the burden of suffering financial ruin as a result of an unfortunate and unforeseen event. Comprehensive insurance allows you to do repairs soon after the event instead of delaying repairs until you can afford it. Some insurers offer additional benefits such as a no-claims bonus or temporary accommodation if your house is uninhabitable. Speak to your broker to confirm the terms and conditions of your policy.

Homeowners who are insured need to make sure they fully understand the terms of conditions of their insurance cover. Most policies will detail explicit exclusions that a homeowner must be aware of, such as theft claims that are only valid when forcible or violent entry can be proven, damage to the property caused by pets, maintenance neglect over time that leads to damage or loss, and when the home is left unoccupied for a considerable period of time.

It is best to discuss the precise benefits and exclusions of your policies with your trusted Garrun broker who will be able to explain all the terms and conditions to your satisfaction.