Insuring your home and buildings: Its you choice!

May 2010

As a homeowner in South Africa you will know that insuring your property is necessary. The likelihood, however, is that you will be led to believe by your bank or bond provider that you should let that institution insure your property.

The National Credit Act compels banks to allow the consumer free choice as to who provides the homeowners or buildings insurance. This does not mean, however, that the banks will not do their utmost to convince the homeowner to accept the bank's policy.

"Banks tend to promote their 'own insurer' because the bank generally owns, or is a shareholder of the insurer," says Melody Redman, general manager of Budget Insurance Brokers.

The risk of any large investment is substantial, and buying a home or other property is no exception.

It is vital that the building is covered against fire or explosion; storm, flood, lightning strike and resultant damage; and, ground movement including subsidence and landslip. One can often save money by insuring their home or building with the same company who insures their vehicle or home contents.

"A bank will often put great pressure on the homeowner to insure through its associated insurance company, but the truth is that it does not matter which insurance company you use, as long as you insure your home.

"This leaves you free to shop around for the best deal. In the end, it is your choice," notes Redman.

A number of important factors around choosing the correct value of insurance must be taken into account once an individual has selected an insurer. The primary fact to bear in mind is never to under-insure assets - if you are under-insured, you will be paid out only for the proportion of the value that was covered, leaving you to make up the difference between that and the full cost of restoring the house or building to its previous condition. In order not be caught short, the sum or value insured should make provision for the cost of rebuilding all the structures on the property entirely (as though they were completely demolished). This amount should also allow for any inflation that may occur over the course of the insurance years, and should take into consideration any escalation in the costs of material and other associated construction costs.

In the traumatic event of your home or building being damaged or destroyed, the last thing you want to hear is that you will have to dig deep into your pockets to finance the rebuilding expenses.

"It is therefore pivotal that homeowners do their maths each year and increase their sum or value insured accordingly, factoring in inflation and a possible incorrect evaluation at the outset of the policy," Redman advises.

"Policyholders should therefore revisit their base insurance values at least every five years if the insurance company does the automatic increase, and every year if they do not."

The take-home message is that when insuring your most valuable asset, it never pays to under-insure.