How to insure your home: dos and dont's
26 February 2016, 08:07
Charné is a Registered Tax Practitioner and has written several magazine articles with financial related themes since 2006. She is a known finance and tax expert working as an adviser at lemons into lemonade financial planners cc.
There are two types of insurance cover for your home:
1. Cover for what’s inside, namely “Household” or “Home Content” cover.
2. Cover for the house itself and certain fixtures or driveways including the geyser, called “Buildings” or “Home owners” cover.
You are covered for (for example) theft, fire, earthquakes, acts of nature like floods or hail, subsidence (this is movement of land that causes damage to your house’s structure), bursting of certain water pipes, damage caused by animals (not pets) or falling of trees. There is a long list for what you are covered for (and what not!) so always read your policy document!
Neither one of these two types of insurance cover is very expensive unless you’ve had a lot of previous claims or live in a very unsafe environment. It is definitely cheaper to take out insurance than to buy a new house, new furniture or new personal items when they were damaged and you could have claimed for it on a policy.
Let’s look at a few common questions on these types of cover:
What amount do I insure my household content and personal belongings for?
You do a detailed inventory to determine the value. Make a list of the rooms in your house and give a name to each room. For example: Kitchen, Main Bedroom, Small Bedroom, Living Room, Dining Room, Bathroom. Go through each room and list the items and their replacement values. Take a few photo’s of the room from different angles. Get a total replacement value for each room and then add them together to see what you must be insured for.
Are there any items with household cover that are covered but that must be mentioned specifically?
Yes. Make sure that you have a separate list of garden furniture and jewellery that you keep in the house. Most insurance companies also want you to list items separately that are above a certain value (ask the insurance company what their requirement is). As soon as you use the item inside and outside the house, it must be covered under “All Risk Cover” (watch out for Part 4 in this series) and not under your Household cover.
With household cover for my possessions, when do I need to make changes to my policy?
You make changes when:
- you purchased new items or sold existing items and the value of the cover must change;
- you move to another address (this is very important because the premium you pay is linked to the area you live in);
- you leave the house unoccupied for long periods at a time; and/or
- you sublet or let your house to tenants.
When can the insurance company refuse to give me household cover?
Some insurance companies have minimum requirements as to the property’s security. For example, if you’re on the ground floor of a block of flats, then security gates and burglar bars at all opening doors and windows may be compulsory. Some insurance companies will still insure you but at a higher premium per month or they will ask you to install an alarm system first.
When does Building Cover or Home Owner Insurance apply to me?
This type of cover will apply to you if you own a property. This insurance is compulsory if you have a bond on the property and it’s normally included in your bond payment. If you don’t have a bond on the property, you can arrange your own insurance.
What value do I use to insure my house?
You use the replacement value of the property and all the permanent fixtures. In other words, if your property is destroyed in a fire or an earthquake, what will it cost you to replace the buildings and all the other permanent improvements, driveways, walls, patios, underground pipes and swimming pool. You are allowed to add certain amounts to the replacement value, such as municipal fees, demolition charges, debris removal and costs to make the site safe again.
What can I do to ensure that I calculate the replacement value correctly?
You keep record of municipal or independent valuations done on your property. You also keep details of permanent fixtures you add to the house or outbuildings while you are the owner. Keep records of building invoices, your proof of payment and plans of the property. Remember to make sure to get approval for certain renovations where your building plans must be amended. The insurance company will also ask you other questions like in which year the house was built, the size of the house and/or how many rooms it has and the amount of geysers the house has (and whether the geyser is inside or outside the house).
Let’s be honest. At the end of the day you have insurance for one purpose: you want to get paid when you have a claim. Let us look at the five main reasons why claims are not paid out (or not paid out in full). If any one of these reasons applies to you, make the necessary changes to your insurance policy as soon as possible.
1. You did not tell the insurance company of previous claims you had.
Previous claims do not only affect your premium, but also if future claims are paid out. Honesty is the best policy!
2. You were not covered for that specific claim to begin with.
To make sure what you are covered for, read through your policy document. Make notes of what you don’t understand and discuss it with your broker or a call centre agent of the insurance company. There are certain things you will never be covered for like existing or intentional damage.
3. You were under-insured.
Your house or what’s inside, must be insured for its replacement values. If you insure it for lower values, you will only get a portion back of your damages back if you claim. If the replacement value is actually R500,000 but you were only insured for R250,000, it means you will only be covered for 50% of any damages. If your final damages were R300,000, you will not get R250,000 that you were insured for, but only get R150,000 which is 50% of the actual R300,000. It is important to review your policy regularly to make sure you’re always insured for the correct value.
4. You did not tell the insurance company you work from home.
It’s becoming more common for people to have a home office and it’s very important to mention this on both types of policies. In some cases, you may have to move your policy from a Personal policy to a Business policy (called “Commercial Cover”).
5. You cannot prove the existence of an item or that you paid for it.
Especially with items of bigger value, always keep the proof of your purchase and take a photo of the item. Inventories and proof of purchase also helps to finalise claims quicker.
Watch out for Part 3 of our series and how to go about getting Car insurance.
This article provides general guidelines and does not contain specific advice.
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