For most, their home will be the largest financial asset they will ever own, which is why homeowner’s insurance is imperative. Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that when a financial institution grants a home loan, they will require that the new homeowner has the property covered by insurance.
“In most cases, the bank will take out the homeowner’s insurance on behalf of the new homeowner, and the monthly premium can be debited to the home loan account and paid with the monthly bond repayments. However, if the homeowner would prefer, they can take out the insurance themselves – provided they supply the bank with proof that the home is insured on an annual basis,” Goslett explains.
He adds that it is vital that the insurance covers the property, along with all buildings on it, such as a freestanding garage, a swimming pool, the driveway, all walls and the borehole pumps. “Every part of the property needs to fall under the insurance policy and should be insured for the full current replacement value, which is why a qualified valuer should be called to assess the replacement value of the various aspects of the property,” says Goslett.
He notes that while all features of the home will be covered, homeowner’s insurance does not cover any of the homeowner’s personal belongings, such as their furniture, jewellery, clothing or motor car. “These items will be insured under the homeowner’s household contents insurance and motor vehicle insurance. Another thing that it doesn’t cover is the balance of the home loan should the homeowner pass away or become disabled. Something like this would be covered under a home loan protection plan, which ensures the bond is taken care of in the event of either of these things happening.”
According to Goslett, there is some insurance terminology that homeowners should be aware of, such as being over insured, which means that the homeowner’s insurance is more than the replacement value of the property. The insurance company will only pay out the replacement value - so the homeowner will be paying a higher than necessary premium. He notes that being underinsured is where there is a shortfall between the value of the property and the amount insured. The homeowner will have to pay the shortfall amount from their pocket. Insurance to value is the preferred status and means that the insurance cover equals the replacement value.
If the property is within a sectional title scheme, the body corporate will be governed by the Sectional Title Act, which states that all buildings must be insured for their correct replacement value. A building is defined as a structure of permanent nature erected or to be erected and which is shown on the sectional plan as part of the scheme.
Once the property has been paid off, the homeowner is not legally required to have homeowner’s insurance. However, this leaves the homeowner at risk of losing an asset that they have worked so hard to pay off. “Fire or flood could destroy the home leaving the homeowner with nothing if they no longer have homeowner’s insurance. Homeowner’s insurance protects of the homeowner’s most precious asset and ensures that they will have a roof over their head, even after disaster strikes,” Goslett concludes.