Your home is not only where your heart is, it is most often your most valuable asset. And, while the idea of losing it (and all its treasured contents) is unthinkable, having insufficient insurance cover to replace it is an even more unbearable prospect.
Sadly, the recent fires in the Western Cape – which saw so many people lose their homes as well as all their possessions, their documentation and, in some instances, their livelihoods – are a very grim reminder of the huge price we can pay for making (or failing to make) important financial decisions without being fully aware of the consequences. So let’s take a look at some of the things you need to bear in mind to be sure the insurance cover on your home properly meets your needs:
The sum you insure your house & contents for should ALWAYS match the price you’d have to pay to replace them. If you are unlucky enough to lose your home, you will only be paid out the amount you’ve covered it for. (So if it’s worth R1 million, but you’ve only insured it for R500 000, that’s all you’ll get.)
Understanding the importance of …
… Average
If you are underinsured, you’re likely to find your insurer will apply an “average” to your claim, which means that you will be responsible for the portion of your “loss” that isn’t covered. So, say you incur damages of R300 000 on your R1 million property, you’ll only receive a R150 000 pay-out because you’ve only insured it for half the amount. This will leave you R150 000 out of pocket, and potentially unable to afford to complete the repairs, or it could drive you to use inferior materials and finishes which will have an impact on the value of your home.
… Updating your home value regularly
Costs rise all the time, so it is really important to have your home and contents revalued regularly. If necessary, you can adjust your sum insured to make sure you’re always adequately covered.
… Rebuilding costs
There’s often more to rebuilding than the costs of the materials and labour. You may need the help of an architect or surveyor, and there could be demolition fees too – all of which carry their own (variable) costs. So when you‘re calculating the costs you need to insure, you’ll need to factor these in too if the policy doesn’t already cater for this.
… Not over-insuring
When you insure a property, it excludes the cost of the land it stands on. This means you should only insure your home and contents (rather than the property’s potential sale price), as you won’t be able to claim more than the costs of rebuilding the actual building with all its infrastructure, fixtures and fittings.
… Extraordinary expenses
Sometimes, even when we take the trouble to carefully consider all angles, extra expenses can creep in and it’s best to factor these in upfront. For example, the fires that ripped through Knysna and Plettenberg Bay a few years ago damaged so many properties that building materials and contracting resources were at a premium and will add to unexpected costs. Even though you may believe you could rebuild your home for less than what a professional valuation suggests, don’t be tempted to work on lower building rates.
… New building requirements
If you live in a historic home or an older property, you may find that rebuilding will involve you making upgrades to comply with current building regulations. Again, these may add unexpected costs and it’s worth doing the homework upfront to ensure your policy covers them fully.
You need to be able to provide proof of the home contents you own, as well as their value.
Home contents cover is always calculated according to its replacement value but, to claim, you need to be able to prove that you own certain items and what they are worth. Again, there’s something to learn from the unfortunate experience of fire victims, many of whom had to flee their homes without being able to rescue anything – let alone documentation that could prove ownership or value of their assets.
Things you can do …
… Keep digital records
Take photos or videos of your home contents (and corresponding receipts), then store them digitally, online in cloud storage, so you can access them anywhere, anytime.
… Make an inventory
Download a free inventory app onto your cellphone and store the same information there, or ask your broker for an inventory checklist.
… Make electronic copies of your identity documents
If you lose your documentation and can’t prove who you say you are, you may have difficulty accessing your funds when your insurance company processes your claim.
… Ask a professional valuator to do the job for you
It’s an onerous job so if you’re unlikely to do it yourself, don’t leave it, call in professional help.
When you need insurance advice, consult a broker.
The purpose of insurance is to return you to the same position you were in before you experienced any loss, and a broker has the experience and know-how to advise you appropriately. If you want to reduce costs, rather discuss other ways of saving premiums such as having a higher excess or installing additional security, than being underinsured. Especially when it comes to replacing the roof over your head.
