05 Feb 2013
Thousands of South Africans who have made significant sacrifices to buy homes could face financial hardship in the event of their homes being damaged or destroyed, simply because they didn’t take the basic steps required to make sure that their houses were correctly insured.
Denise Shaw, head of Standard Insurance Limited, says South Africans tend to take homeowners’ insurance for granted and are driven by the market value of homes in the area when purchasing cover.
While this assumption is logical, it is the incorrect way of insuring a home and could lead to financial loss if homes are extensively damaged.
“Homeowners need to remember that major repairs to a house will incur costs at the rates that apply to materials, labour and so forth at the time that the damage occurs.”
Rates will differ depending on finishes, design, location of property, and so on and these costs will apply regardless of the age of the house.
Making sure that a house is insured for replacement at current costs is therefore essential for peace of mind, explains Shaw.
She advises that it is therefore wise to consider the services of a property valuation expert before insuring a home.
“The cost of this service is reasonable and will be recouped many times over if a claim is lodged.”
The unique particulars of the home can then be provided when requesting an insurance quote, so that the owner can be certain that the house will be adequately insured, she says.
For example, when insuring a home, the owner should specify special features or fixtures that are integral structural parts of the house, ensuring that these are included on any insurance quote.
Common mistakes when it comes to home insurance are:
1. Under-insuring homes
Underinsurance occurs when a homeowner underestimates the real replacement cost of the home.
In this case the householder can end up in debt by finding that he or she has a huge financial shortfall in the event of a house being damaged or destroyed.
2. Over-insuring homes
A house is over insured when the owner believes it is worth more than it actually is and insures it accordingly.
Insurance pays out a portion of what the customer considers realistic and the additional money paid in premiums is lost.
3. Basing the worth of a home on a valuation supplied by an estate agent.
An estate agent values a home by checking the selling and purchase prices of homes in the area.
The actual replacement cost could be higher or lower than the market value, as it is based on building and repair costs, and not the intrinsic value of being in the “right” area.
The market price of a house could be higher than its replacement cost because it is situated in a desirable area.
Similarly, the market price could be lower than the replacement cost because it is located in an area that is regarded by an agent as being less desirable.
4. Assuming that the home valuation of a bank site inspector is the appropriate amount for insurance
The role of a bank site inspector is to check that the house being considered for purchase is worth at least the amount that the bank is advancing when the prospective buyer applies for a loan.
“Many people believe that when a bank inspector has valued a home that they should be able to claim for latent defects, say rising damp, which was present when the home was valued - this is simply not the case,” says Shaw.
5. Believing that home insurance takes account of all the variables involved in a dwelling
When purchasing insurance over the telephone, insurance agents do ask questions regarding the home concerned that cover a number of building options.
The most common is whether the house has a thatched or tiled roof. However, the facts that the house may have special fittings – for example slate tiles that are expensive and require special fitting techniques, or costly imported floor – may not be covered.
In these instances, if the fittings or features are not specified in the policy, the home could be underinsured.
Shaw says it therefore pays to get an expert to do an independent valuation, who will take all these factors into account and supply them to the insurance company as a basis for a quote.
The building will then be adequately covered.
“The responsibility of making sure that a house is correctly insured rests with the homeowner.”
Comparing your home to the one next door and placing a similar value on your home for insurance purposes could be a mistake.
She adds that taking the time to appraise a home offers two advantages – peace of mind and the certainty that if things do go wrong, you won’t be left with unexpected expenses.
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