Protect your home and all that is in it

If you own a home, you need both homeowner’s insurance and household insurance.

Your home is most probably the most valuable asset that you own, so it is important to have insurance cover on the property should it be damaged or even destroyed by events such as a fire or a storm. Cover for these eventualities is called homeowner’s insurance.

While homeowner’s insurance covers the structure of your dwelling – the foundations, the walls and the roof – household insurance covers the contents of your home, such as your appliances, furniture and personal belongings. Homeowner’s insurance can also cover a swimming pool, boundary walls, garage or tennis court.

HOMEOWNER’S INSURANCE

When you get a home loan from a bank, it will insist that you take out homeowner’s insurance. The bank needs to be sure that it can still recover its loan should the property be damaged or destroyed.

If you on a home in a sectional title property, you usually enjoy cover for homeowner’s insurance, and the premiums are included in your levy.

If you are not insured and your home is damaged, you will have to pay for the repairs while maintaining your bond repayments. This could have a crippling effect on your finances.

If your home is destroyed and you do not have insurance, you will have to pay the bank whatever is still owed to the bank, because your obligation to repay the loan does not fall away when the house is destroyed. And you will also have to pay to have a new home built. This is clearly beyond the means of most people.

South African tax law prohibits conditional selling of insurance, but when a bank lends you money to buy a property, the bank has the right to insist that you take out insurance, and even to insist you take out insurance with a particular company. The premium for homeowner’s insurance can be added to your monthly home loan repayments.

Homeowner’s insurance does not provide blanket cover in the event of any damage to your property or its destruction. Read the fine print in your policy document to clarify what protection you have if anything should happen to your home. When you submit a claim, the responsibility rests with you to prove that the damage or destruction was a result of one of the events stated in the policy, such as a fire, flood, or an earth tremor.

Negligence is grounds for the insurer to repudiate a claim. Also a common exclusion is damage caused by wear and tear, or lack of maintenance.

If you find that the sum your insurance company pays out does not cover your loss, because building costs or property prices have risen, you cannot hold your insurer responsible to make up the shortfall.

You must take increases in the value of the property and in building and replacement costs into account when determining the correct value of your property. This sum must be revised regularly. Some insurers automatically increase the amount for which your house is insured every year, but you should remember that this increase is arbitrary, and the amount insured may not reflect the actual value of your home.

HOUSEHOLD INSURANCE

Household insurance covers the contents of your home against loss arising from events outlined in your policy document. Contents also covers things in your garage and/or store room as well as garden furniture and other items outdoors, although there may be conditions.

You cannot take out household insurance to cover only specific items, such as your television, video recorder and sound system.

Virtually all household insurance is provided on the basis of “new for old”. In other words, the insurance company pays out what it would cost you to replace the insured item at current prices rather than what it originally cost you to buy it. You must therefore keep an eye on the current replacement cost of your possessions.

When you take out household insurance, you place a value on your household contents by insuring them for a particular sum. This sum, less any excesses which you may have to pay, is the maximum that your insurance company must pay you if everything is lost, stolen or damaged. Should your goods turn out to be worth less, then the lesser amount, less the excess, will be paid out. This is called over-insuring and you will pay premiums on an amount that you will never get should you lose your goods.

You also lose out if you underinsure your possessions. Many people do not insure their goods for what they are really worth, thinking that they will save money by paying a lower premium. This is not a particularly good way to cut down on insurance costs. More importantly it has negative consequences when your claim is paid out, as the flowing example illustrates:

The correct value of your household contents is R200 000.00 but you only insured your contents for only R150 000.00. Initially, your save about R750.00 a year (or about R62.00 a month) in premiums. Your house is burgled in January and your video machine, television set and some clothing totaling R6 500.00 is stolen.

An insurance assessor values the contents of your household at R200 000.00 and calculates that you are under-insured by R50 000.00, or 25 percent below the actual value. Assuming that the assessor agrees with you that the value of the goods stolen amounts to R6 500.00, the insurance claim payout will be R4 875.00, or 25 percent less than you may be expected. The effect of under-insurance in this case is that although you paid R750.00 a year less in premiums (to under-insure), you received R1 675.00 less on your claim – well over double what you believed you were saving.

Also, you have the rest of the year to go and if you suffer further losses without adjusting your insured amount, you stand to lose out again if you make another claim.

Your household policy generally requires that you co-operate with your insurance company when it comes to establishing the value of any goods that you claim.

Contrary to what some insurer’s assessors believe, this does not mean you have to provide invoices, receipts and evidence of the exact place and time where you bought each of the items in your claim. You simply have to make available any documents which you could reasonably be expected to have retained or if you no longer have them, explain why you did not keep them.

It is likely that you would keep the receipt of the every expensive item, such as a diamond bracelet. But a receipt for a portable radio that you bought some years back and paid for in cash is probably not necessary. You should normally be able to remember the approximate price and place of purchase.

But you should not exaggerate your claim, misdescribe any of the foods you lost or claim for goods you never possessed. Some people think they can escape the consequences of this by reducing the claim when the truth comes out, but his amount to fraud. The insurance company may be entitled to reject your entire claim if you do this.

Exclusions in household cover

You should study your policy document so that you know what the policy covers. Household insurance generally does not cover damage caused by civil disturbance or political riot, livestock, animals, domestic pets and theft while the house is let or sub-let. Also excluded is equipment used for professional purposes, for example, a computer in a home office. If you run a bed and breakfast from home, the appliances in the rooms would be excluded from household cover. If you want these included in your cover you need to declare it to your insurer.

Losses as a result of theft may also not be covered in all circumstances. For example, theft from an outbuilding may not be covered, or a very high excess may apply if it was not covered by actual forcible entry.

Some policies do not provide full theft cover while your goods are being transported when moving house or theft when you and your family are living in temporary accommodation. Other policies exclude theft from a property which is left unoccupied for more than 60 consecutive days under a 12 month period, unless there was forcible or violent entry.

It is standard for insurers to limit their liability for any one item under household contents cover to a maximum, of say, one-third of the total sum insured. Items to which a limit could apply typically include jewellery, precious metals and stone, furs, rugs and carpets and other high-value items such as television sets, decoders and computer equipment.

All Risk

Items that you take with you when going on a business trip, a holiday or even a day’s outing must be specified under All Risks section of a policy. In other words, household insurance only covers items while they are on the property. Once you take them off the property, they are not covered unless specified. If you do not specify such items, and you lose your camera on a visit to the beach, it may not be covered under your policy.

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