Is Your Most Valuable Asset Properly Insured?

Let’s face it – most of us don’t pay enough attention to the detail and fine print of our insurance policies.  And the bottom line is, failure to do so can cost you a wheelbarrow full of money that you don’t have and most of all, could be avoided entirely by taking 30 minutes to critically review and update the true value of your insurable assets once a year.

“Thanks to the rise in property replacement costs, your home could be significantly under-insured in the event of a major catastrophe - a fire, earthquake, floods or any other major ‘peril’ as the insurance industry defines them,”  says Mandy Barrett, Manager Marketing Sales and Service, Product Solutions at Glenrand M-I-B.  The true gravity of the impact of underinsurance is painfully illustrated in the following example of insuring your most valuable asset – your home

You bought your home ten years ago for R300 000 and insured for the same amount.  But since then it has appreciated in ‘market value’ to, say, R750 000. However, the key ‘replacement value’ – that is the cost to rebuild the home from scratch at today’s prices - could be R1million.  The under-insured component could therefore be as much as R700 000, based on replacement and other costs.

Bond insurance would cover around 90% of the original R300 000 loan if the home was financed in the typical way, with a 10% deposit. That cover secures the loan of the bank to the homeowner, but it does nothing to cover the appreciation in market value and today’s replacement costs.

And even if your insurance policy pays out the full R300 000 after all considerations, you’ll be hard pressed to replace anything remotely resembling your original home at today’s building prices.  And of course you’ll also first be liable for all other costs including demolition and professional fees, removal of debris, new architectural plans (following fire or flood damage), fire brigade charges and public authorities’ requirements.  Not much of that R300k left when you take all that into consideration!   

Let’s not forget that in the event of a fire or flood, you’ll most likely also be looking at having to replace all your household contents, another area where Santam research has shown that some 40% of short-term insurance policyholders are under-insured by up to 45% and that’s notwithstanding the fact that South Africans are more exposed than most countries to loss from the likes of crime, burglary and vehicle claims including car hijacking and theft. If you are under-insured in the event of a claim, you may be paid out only partially for the loss. That’s because of what the insurance industry describes as the ‘average’ formula.  For example, if you insure household contents for R250 000 but in fact the replacement value is double this amount, you are effectively 50% under-insured.  Should you suffer a loss of say R100 000, the insurance company will therefore pay only 50% of the claim at R50 000, leaving you out of pocket for the balance.  Imagine what it would mean if your home was under insured to this extent! 

“The onus is on you to make certain your home and assets are adequately insured. When deciding the correct value to insure one must consider the price of rebuilding the house from the ground at today’s replacement building costs.  The cost of providing sufficient cover is negligible in the greater scheme of things. What’s more, you can lump your homeowners’ cover with your motor and householders cover (which insures the contents of your home) thereby reducing the overall rate at which your cover is provided,” adds Mandy Barrett, Manager Marketing Sales and Service, Product Solutions at Glenrand M-I-B.

An alarming aside is that property owners who pledge their homes as security for loans are in danger of having to honour those loans out of their own pocket should they be under-insured.  Ironically, people will often insure their cellphones before they make sure that their house is properly covered.  
Aspects to consider are:

When it's time to renew your policy check your coverage, but for peace of mind you may want to do so immediately.
Shop around for the best rate
Ask your broker about policy changes check whether you have limited cover for subsidence and landslip.  Most insurers offer limited cover.  Full cover can be purchased at an additional premium subject to a satisfactory geological survey. The cost of the survey will be for your account.

When you make a major purchase, build an addition onto your home or improve it, talk to your broker about increasing the cover to allow for the improvements.
If the roof construction of your home is thatch, you may qualify for a discount by installing fire alarms and sprinkler systems.
Finally, keep your policy in a safe place, away from your home, in a bank safety deposit box for example.

Tlalane Ntuli
Brand Manager – Marketing and Development
Glenrand M.I.B.

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