Don't neglect property insurance

One of the lesser known aspects of the new National Credit Act is confirmation that you are not obliged to obtain your homeowner's insurance (HOC) from the bank that advanced your home loan.

Homeowners are, in fact, free to obtain quotes from other sources of HOC with the very real prospect of reducing their costs in the process.

And that's just one aspect that suggests the need to treat HOC (which covers the bricks and mortar rather than the contents of your home) as one would any other aspect of insurance, says RealNet property group CEO, Tjaart van der Walt.

"Home insurance, whether it is for contents (furniture and other goods), structure, or life insurance on the home loan amount, has become increasingly relevant in your overall financial planning needs, but is a seriously neglected part of most insurance portfolios.

"For example your home may be significantly under-insured as a result of the steep rise in property values in recent years, or because you have built on additions, and should that be the case, you could find yourself badly out of pocket in the event of a loss due to fire, earthquake or flood."

Taking the example of a home bought 10 years ago for R500 000, this may well have doubled in market value to R1m now, and will no doubt have an even higher replacement cost due to the increased cost of building.

If it has not been adjusted, HOC insurance will cover say, R450 000 (90% of the original R500 000 cost of the property, assuming an initial deposit of 10%) so based on market value the under-insured component would be R550 000.

However when deciding the correct value to insure one must actually consider the price of rebuilding the house from the ground up, plus the cost of demolition, professional fees and local authority connections.

And, notes Van der Walt, it's not up to the bank to look after you in this respect – especially if you obtain your HOC elsewhere. "The onus is on you to make certain your home is adequately insured – or to negotiate a discount if you have made alterations that lower the risk, such as installing fire alarms or upgrading the electrical system.

"Ideally you should value your property correctly every year, and it's also important to keep your HOC up to date and intact even after you've paid off the home loan."

For more information contact 012 460 4605 or email tjaart@realnet.co.za.

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Very informative, thanks! - Adolph Jonker

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