Feeling valued

For most South Africans their home is their most valuable asset, tying up most of their equity. In many instances these assets are insufficiently protected in that they are incorrectly insured in the form of over insurance or under insurance. What one should take into consideration when insuring their property is that the insurance replacement cost is seldom a measure of the properties open market value.

Many people assess the value of their insurance at the level their homeowners insurance as required by banks when granting a loan. This figure is generally inaccurate as it is specifically intended to act as collateral for the loan amount covering the bank and not the insured. Several factors need to be taken into account in reaching a correct insurance value; these include the cost of demolition and clearing of the site prior to new construction in the event of a total loss. One should also consider the cost of professional fees and a contingency factor for unseen expenses.

Underinsurance generally results in an inadequate payout when a loss is suffered. If you are underinsured, insurers will adopt the principle of average whereby they will compensate the insured based on a reduced prorated amount, rather than the actual amount. For example, if your house is valued at R1million and you are only insured for R800k, in the event of a complete loss you will be paid out the R800k.

In the event of a partial loss, whereby damages amount to say R100k, the insurers will pay out an amount of R80K. This also causes your entire policy to come under scrutiny. Alternatively, if you are over insured the insurers will only pay an amount equal to the value of the property, this amounts to unnecessary premiums being incurred and money wasted. There are a number of methods used to value fixed and movable assets.

Open Market Value (OMV) represents the value associated between a willing buyer and willing seller in an arm's length transaction. Insurance Replacement Cost or Estimated New Replacement Cost (ENRC) incorporates the full cost to replace or reproduce the property in a similar fashion to its original status. This includes demolition cost, professional fees and so forth. Forced Sale Value (FSV) represents the value when under distress by influences such as liquidation, insolvency or a seller's urgent need to dispose of the asset. Properties in this scenario generally reflect a value between 30%-40% below market value.

By having your property properly valued you can stand assured that in the event of a partial or complete loss your most valuable asset is covered. Most insurers prefer professional valuations as a measure to gauge insurance levels. It reduces their obligation to the risk and insures a more accurate figure, giving you the peace of mind that in the unfortunate event that you suffer a loss, you are compensated sufficiently by your insurer.

In addition to fixed assets, the contents or movable assets of your home should be correctly insured as well. A professional valuation will provide the insured with a step by step walk through schedule of the assets listed and their respective values. Accompanied by photographs of the individual assets and identifiable features pertaining to them, this inventory will eliminate questions regarding the assets existence or worth in the event of a loss.

The best way to make sure that you are adequately insured is to obtain an assessment from a professional valuer. Professional valuers can be found through the South African Institute of Valuers or sworn appraisers to the High Court.

  • When evaluating the cover for movable assets consider the replacement cost of the items and remember to include VAT.
  • Make sure you review your cover, making accounts for annual inflation and acquisitions and disposals.
  • Lower premiums can be offset by higher excesses.
  • Keep photos of valuable items and a copy of your assets schedule in a safe place.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    • 21 Nov 2017
      When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such
    • 21 Nov 2017
      As more and more South Africans look to invest in property abroad, Spain is offering them one of the best deals in global real estate.
    • 20 Nov 2017
      Since 2012, sectional title complexes have been leading the South African property market, not only in terms of price growth, but sales volumes as well. Remaining relatively strong, even in the face of 2017’s political and economic turmoil, experts say this market segment could offer valuable insight into South Africans’ property purchase priorities.
    • 20 Nov 2017
      Regardless of whether you are purchasing your first start-up home, downsizing or moving in with roommates, finding ways to maximise small spaces can be a big advantage, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Nov 2017
      Property valued at approximately R1 billion is on High Street Auctions’ sales floor during the month of November, including the much-anticipated sale of the Tshwane Mayoral Residence and the land occupied by one of South Africa’s oldest operating gold mines.
    • 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.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us