Is Your Home Owner Building Insurance Sum Insured Enough?
According to FNB’s House Price Index, property prices are on the decline in South Africa, with slow economic growth making it more likely that year-on-year house price growth can be adjusted downward to 3.5% for 2018, compared to 2017’s 4.3%. With this downward growth trend, homeowners looking to upgrade their property to make it more attractive to buyers should be wary of doing too many improvements.
According to Vera Nagtegaal, Executive Head of Hippo.co.za, most areas have a capped property value, and with current decline in property prices in addition to the increase of building costs, there is no guarantee that upgrades to properties will increase the value in the long term.
Nagtegaal says that, more importantly, if homeowners are to embark on upgrades or improvements, they should also be mindful of the insurance implications. “Any additions to the home should always be certified by a reputable contractor and added to your insurance policy as claims can be repudiated or only partially paid out if these are not declared and covered in the policy.”
She also points out that if you lose your home in the event of a disaster, your building insurance should cover the full value of replacing your property. “The last thing that you want is to have to claim from your insurer and realise that you may be underinsured.”
Nagtegaal explains that, with declining house prices and rapidly increasing building costs, there can easily be a gap between the market value of properties and their replacement costs. “It is therefore important to re-evaluate your building insurance on an annual basis, to ensure that the amount your home is covered for reflects the current value of replacing your property.”
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Risk assessment surveys in recent years have concluded that the average homeowner’s property is underinsured by as much as 35%.
“It is crucial for homeowners to know the value of their property and to know how much and what the insurance covers. For most people, buying a property will be the biggest financial commitment they will make, so they should take extra care when it comes to insuring this valuable asset,” adds Nagtegaal.
These are some of the most common risks covered under building insurance:
- Malicious damage
- Satellite dishes and masts
- Bursting, leaking or overflowing pipes
- Storm, flood, wind, water, hail or snow
- Fire, lightning and explosion
“Various insurers will offer different packages or incentives, but it is absolutely crucial as a departure point to have your property insured for what the property would cost if you were to replace it due to any (unfortunate) eventuality,” says Nagtegaal.
When an insurance company receives a claim for a property that is underinsured, as determined by an assessor, the company will apply what is known as the ‘average clause’ and the property owner may end up having to pay for the shortfall.
“Property owners should empower themselves by knowing exactly what their properties are worth and how much their assets are insured for, and should review this at least once a year,” says Nagtegaal.
Not mentioned in the above article is to also take all professional fees into consideration as part of the insured value. i.e architects etc
Article 10 Jan 2019 https://www.property24.com/articles/does-your-insurance-cover-your-homes-true-value/28046