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.

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