Why updating your insurance is an important part of owning a home

Updating your insurance policy regularly is a very important part of homeownership, but it can be difficult to know for sure just how much coverage you really need. Many real estate agents offer free home valuations, which can be a useful tool in assessing how much insurance coverage you need, but beware: limiting coverage to resale value alone could leave you dangerously uninsured!

“What people often don’t think about is the fact that when your house is damaged and you need to claim from insurance, that money isn’t used to buy an equivalent home – it’s used to fix or rebuild your damaged property,” says Schalk van der Merwe, franchisee at the Rawson Properties Helderberg group. “That means resale or market value is actually almost irrelevant when it comes to insurance. Rather, you need to make sure you’re covered for the amount you would need to rebuild your home from scratch.”

This, van der Merwe reveals, can be a far more expensive prospect.

“Building a home on an empty stand can cost anywhere from 10% to 30% more than buying an existing property,” he says, “and that’s excluding any costs involved in clearing rubble or removing unsafe structures. In the case of rebuilding a damaged home, this is almost always a factor, and can add significantly to the cost of repair or replacement.”

According to van der Merwe, this has been a hard lesson learned by several families in the Western Cape which was affected by severe floods in 2013 and a number of widespread fires in more recent months. To avoid the heart-breaking situation of being left underinsured in a worst-case scenario, he recommends reviewing home insurance policies on a regular basis, with the help of a qualified and informed real estate agent.

“A good property valuation – or property value estimation – should cover a lot more than just market value,” he says. “There are actually four different facets to the value of any property – market, replacement, municipal and indexed value – and a good estate agent should be able to give you information on all of them.”

When it comes to insurance, however, replacement value is the most important figure. This is based on the construction costs involved in returning a destroyed property to its previous condition, and should not include the value of the vacant land.

“Homeowners also need to be careful of the wording of their policies with regards to replacement value versus actual cash value,” warns van der Merwe. “If they are insured for actual cash value, the insurance company will deduct an amount for depreciation from the cost of replacement and the homeowner will be left footing the bill for the difference. If they are insured for replacement value, however – and their replacement valuation was accurate – they will be reimbursed in full for the repair or rebuilding of their home.”

So what’s the best way to get an accurate replacement value estimate? Van der Merwe believes the key lies in getting an experienced real estate agent with up to date knowledge of your area to analyse your home.

“All real estate agents will be able to give you some idea of the market value of your home, but it takes a lot more specialist knowledge to be able to provide an estimate on construction costs as well,” he says. “At Rawson, we have years of experience, and access to a huge amount of data that plays into all aspects of a property’s value. That allows us to give far more accurate estimates on valuations for all purposes, including insurance.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us