Homeowner’s insurance is one of the vital products available in the financial market. Natasha Osman, Bancassurance: Head of Homeowner’s Insurance Cover (HOC), provides more insights regarding this topical subject matter.
WATCH : Property insurance for the upcoming holiday season.
Q: Why is homeowner’s insurance mandatory when having a home loan?
The purpose of the mandatory requirement for homeowner’s insurance is to protect the customer and the bank from the risk of damage to the property, which could result in a financial loss and impact the property value. If the customer does not have the financial means at any given time to cover such a loss, this will adversely impact the value of the property.
Q: How is the rate calculated; per sq metre, fixtures, or a mix of both?
Insurers use the terms ‘sum insured' or ‘full replacement value’. In other words, the sum insured must be equal to the full replacement value. Full replacement value considers the building structure, which includes outbuildings, garages, swimming pools, walls/fences, security fixtures, paving and other permanent fixtures, such as solar panels as well as aerial and satellite devices. Further to this, it takes the type of wall and roof construction and the square meterage of the property to calculate the replacement value. The replacement value also includes the amount it will cost to rebuild a property should a total loss occur. This value considers additional costs in the event of a total loss, such as rubble removal, engineer and architectural fees, hence making the replacement value higher than the property’s market value.
Most insurers offer a tool called a replacement calculator as a guide to help you calculate the full replacement value of a property. It is important that the sum insured on the policy is equal to the full replacement value. This prevents financial distress because if the property is underinsured, it will adversely affect you at the time of a claim. The building replacement value is also determined by the type of building and finishes of its fixtures and fittings. Absa’s replacement cost value calculator can be located here.
Q: What is covered in the entirety of homeowner’s insurance?
Homeowners’ comprehensive insurance covers the property, its permanent fixtures, and fittings. This implies everything that forms the structure of the property, which includes but is not limited to: the building, domestic quarters, outbuildings, garages and carports, paving, and property walls. The policy provides for cover for sudden and unforeseen damages according to the policy’s insured perils. These insured perils include but are not limited to: acts of nature; impact damage; bursting, overflowing or leaking of water apparatus (geysers and pressurised water pipes); theft; and fire and explosion.
Q: How do sectional title units differ from freehold properties?
One needs to first understand the difference between a sectional title and a full title/freehold property. A sectional title implies that the property is part of a complex, and you purchase a property within such a complex. A full title or freehold property refers to a property which is free-standing, and when you purchase it, you purchase the full rights to the property, including the building and the land on which it is built.
The property type does certainly directly impact the insurance need for the property. If you purchase a sectional title property, by law, the body corporate must take out property insurance for the building structure by law. The premium is charged to the body corporate, and they, in turn, charge the monthly premium as part of the levies payable, which the property owner must pay. With sectional title insurance, it is imperative to inform the body corporate of any alterations and changes made to your property for the body corporate to be aware and inform the insurer. This sometimes makes it difficult as some body corporates allow alterations, whilst others do not. It could affect the replacement value of your property if you make alterations and the property is not covered for the full replacement value, which will, unfortunately, affect you when you claim.
With a full title/freehold property, the insurance will be taken by you. The insurance policy issued is specific to the property, its fixtures and fittings and the insurance premium can be paid annually or monthly, depending on your preference. It is imperative to inform your insurer of any alterations or changes made to the property, as this will affect the replacement value. The bank/insurer may provide you with some guidance on the full replacement value. However, it is important to understand that the responsibility remains yours, as the property owner/the insured, to insure for the full replacement value.
Q: Once a home is paid off, should the owner continue with the insurance in existence or apply for new insurance, and will this be the same payment or less/more?
Homeowner’s insurance is a necessity whether a property is bonded or not. Homeowner’s insurance provides financial protection, especially in the unfortunate event of a loss, which affects your property, and you don’t have surplus funds to rebuild your property. A geyser, for example, will cost an average of R7000 to replace.
Q: What is the most common claim against home loan insurance, and how can you avoid such claims?
The most common claim perils registered are for geysers, geyser replacements and geyser components. Geyser damage cannot necessarily be avoided as a geyser has a lifespan of approximately five to 10 years, and with newer models, the life span has reduced further. There are actions customers can take to mitigate resultant damages from geyser claims by inserting a drip tray under the geyser to prevent or limit damages to the property, as the majority of geysers are located inside the roof. However, it is impossible to avoid.
Q: How does ‘excess’ payment work?
The excess on an insurance policy is regarded as the first amount payable by the insured towards a valid claim. On homeowner’s insurance, most policies will have a standard excess as the policy is priced according to the risk of the property, the size, the features, and its fixtures and fittings. On Absa HOC, we have a low basic excess of R800 per claim event.
Q: Home loan insurance claims dictate who and whom you may not use as a contractor - why is this?
An insurer will stipulate in the policy terms and conditions and the process to follow at claim stage. When a claim occurs, you must inform your insurer of the loss. The insurer will then appoint a service provider to assess the loss or damages and confirm if the loss or damage is because of an insured peril, and if it is, the insurer will receive a quotation from the service provider to execute the repairs.
The reason that insurers require to be notified and prefer to appoint their own service providers is, firstly, because they can understand whether the loss or damage was due to an insured peril. Secondly, the service providers on an insurer’s panel are approved to execute repairs according to the necessary regulations and building standards, as well as having negotiated rates with these service providers. It is always advisable to notify your insurer first of any loss or damage.
Q: What type of maintenance should be done annually to avoid claiming for faults?
All insurance policies provide you with a policy wording or policy terms and conditions, which explain insured perils, what is covered and what is not covered by your insurance policy. What it does not cover is gradual wear and tear and where damage is caused by lack of maintenance of the property, defective construction, as well as other exclusions. It is advisable to read and understand your insurance policy to be aware of what your property is covered for and what it is not covered for.
As a property owner, there are certain responsibilities which you must carry out on an ongoing basis on your property, which is regarded as maintenance. With the onset of summer, now is a good time, before the rains, to review the condition of your home. It is important to note that home maintenance is more than just compliance. Please see below tips for summer maintenance:
Summer maintenance
Gutters:
- The insured needs to clean gutters. During winter, gutters, drains and valleys can become clogged by leaves, which prevents water from flowing freely. Overflow can result in water entering the roof, causing internal damage to ceilings and other internal structures.
Roofs
- As temperatures fall and rise, metal roofs expand and contract, loosening screws and washers. These need replacement at least twice a year. Joins and laps between roof sheets must also be resealed for protection against rust.
- Tiled or slate roofs are prone to loose or missing tiles. Therefore, ridge tiles should be secured, and any cracked or missing tiles need to be repaired or replaced.
- Flat roofs need sealants checked on a regular basis.
- Thatched roofs need to be replaced every 10 to 20 years, depending on the weather and general roof wear and tear. It is important to install a lightning conductor and cover the thatch with fire protection liquid. Thatch also needs combing every two years.
Pools
- Pool maintenance includes the replacement of sand filters as often as is required, but generally at least once annually or bi-annually, depending on the pool size and climate).
- Pool lining should be checked frequently for cracks or bubbling, as this is a sign that the fibre lining is starting to delaminate.
- Filter the pool for at least eight hours a day in summer.
Pipes and water outlets
- Check for bubbling paint internally and externally, as this is a clear sign of dampness caused by a leaking pipe or a rise in the underlying water table. This can also be caused by water ponding against a wall.
- Structural cracking may also be attributed to leaking pipes. Identifying these can prevent substantial damage to your property.
- Inspect your waste pipes and taps at least once a year to ensure they are properly sealed and watertight.
- Check exposed pipes for signs of rust or wear and tear and address those issues immediately.
- Signs of mould or damage caused by mould require the use of professional services to identify the cause and to rectify the problem.
Although these are considered ‘summer’ checks, they really should be ongoing along with other standard annual checks. If you really want to ensure a comprehensive home maintenance plan, you really should include other checks, which also have cost savings.
Annual maintenance
- The installation of a timer on your pool pump and geyser or insulation of your geyser will save a significant amount of electricity. Set the geyser thermostat at 60°C, and not higher.
- Unplug unused appliances and chargers, as these still consume electricity, says the Energy Saving Trust.
- Have a professional clean and sweep your chimney to remove blockages.
- Check windows and doors for deterioration.
- Regularly inspect windows and walls. Repair cracks or leaks as soon as possible to prevent further deterioration.
- Monitor water consumption. If you see a sudden spike in your water bill usage, contract a plumber or the municipality to investigate. It may be a result of an underground burst pipe or leak.
The above, in a nutshell, is a comprehensive guide to homeowner’s insurance.
Writer : Kerry Dimmer
