select
|

The most costly mistake buyers make with commercial property insurance

Commercial property owners in South Africa are increasingly making costly mistakes when taking out property insurance, often through being given the incorrect advice, or not knowing what to consider when they purchase a property.

Gary Palmer, CEO of Paragon Lending Solutions says although a number of clients know how to value property, they don’t always understand what insurance policy is best suited for their needs and often get the wrong advice. “The most common mistake buyers make is to under-insure, due to either being naïve to the risks that are involved, or they are sometimes given the wrong advice.”

He explains that insuring a property incorrectly can lead to higher costs and potentially result in a significant financial loss.

Harry Casper, Director at Associated Insurance Brokers (AIB) Cape, the insurance partner of Paragon, agrees, stating that property advisors, banks and brokers, need to explain to buyers that they need to adequately value a property as soon as the purchase is completed.

“In some instances some banks incorrectly advise their clients to insure their property to the original bond value. However, the original purchase price can be significantly lower than the replacement value, especially while the property market is competitive with a number of good deals available. With that in mind, building insurance needs to meet the buildings replacement value.”

Furthermore, Casper explains that standard insurance would typically cover damages to the ‘bricks and mortar’, but the replacement value needs to factored in to replace the asset at the present time, particularly when dealing with commercial property.”

“The replacement value can include fixtures and fittings, such as lifts, air-conditioning systems and paving to the common areas. Body corporate and sectional title buildings could include machinery and generators as part of the building. Being insured to the bond value, would result in exorbitant costs to the buyer for failing to insure correctly.”

Palmer and Casper both agree that buyers should consult with a professional property evaluator as soon as possible to determine the correct value before insuring. “The base value should be established up front by an expert property evaluator and the policy should include an escalation clause to increase the premium to keep abreast of inflation. Because buyers need additional assistance,” says Palmer.

Another mistake property buyers fail to consider is if the property is occupied or will be occupied by a tenant. “If the tenant’s business performs a high risk function, that function could result in a higher premium. Commercial property buyers need to evaluate what function the tenant will perform and if it results in a higher premium the tenant should be responsible for that increase with this stated in the lease,” Casper says.

In addition, the property owner should consider taking out rental insurance. “This will safeguard the owner from a loss of rent, should the property become damaged and requires the tenant to temporarily vacate the premises while it is being repaired. Liability cover should be included in the policy too but buyers must check that these extensions are in place.”

Palmer advises buyers to ensure they are getting the best premium and cover. “In our experience through extensive supplier comparisons and reviews,  clients can potentially save thousands, or tens of thousands of Rands, or even halve their monthly premium, even while providing them with additional coverage not previously included in their old policy.”

Casper explains that in one case a building was covered against Fire and Perils but this was not sufficient enough. “We covered Fire and Perils but expanded the policy to include Theft, Loss of Rent, Glass, Public Liability, Subsidence and Landslip and Accidental Damage. We further enhanced the business’ cover, at the same premium level, to cover the Office Contents, Stock, Fixtures and Fittings, Business Interruption, Accidental Damage, Public Liability - inclusive of Products Liability.”

Palmer says that brokers and property lenders should be in the position to adequately gauge what their clients’ needs are, and where possible, provide the buyer with the relevant assistance. “Property professionals work together as there are a number of factors that need to be considered when purchasing property. Industry professionals need to look at what the client requires, and where possible, advise them adequately and point them in the right direction when advice, finance, insurance solutions and valuations are required,” Palmer concludes.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Jan 2018
      Many people only start thinking about home-ownership when they are ready to “settle down” or start a family, which is why first-time buyers these days are generally in their mid-30s, compared to those in the previous generation who were usually in their mid-20s.
    • 22 Jan 2018
      Moving away from the city to a country or coastal town and a slower-paced life is a frequent new-year resolution for South Africans, but thorough research should be done before you break free from the hustle and bustle, because making the wrong move could turn out to be a very expensive mistake, and even more stressful for you and your family than staying in the “big smoke”.
    • 22 Jan 2018
      Cape Town is home to many breathtaking and historic homes, but House Invermark designed in 1969 by South African architect Gilbert Colyn, with inspiration from two modernist icons: the Glass House by Phillip Johnson and Farnsworth House by Ludwig Mies van der Rohe is in a class of its own.
    • 22 Jan 2018
      2017 was a challenging year for the South African property market in general, despite small pockets of thriving activity in areas like the Western Cape. As we head into 2018, Tony Clarke, Managing Director of the Rawson Property Group, casts his eye forward to property trends and market influences that could make their impact felt in the New Year.
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK