Homeowners insurance – Why do we need it?

When you apply for a home loan to purchase a property you will find that the bank will impose the condition that you take out homeowners’ insurance cover for the structure.  Why do the banks insist on this cover and why is it so important to understand your policy?

WHAT IS IT?

Homeowners Cover is short term insurance that protects your house and all other permanent structures, improvements and buildings on the property against loss and damage.

WHY DO I NEED IT?

As a homeowner, you should always take into account the possibility that something unexpected like a fire, theft or accident could happen at any time.  The best way to ensure that you are protected against such possibilities is through a Homeowners Insurance Policy.  Not all homeowners’ policies are the same; therefore you need to ensure that the policy chosen provides the coverage you require.

WHO PROVIDES IT?

All the major banks provide their clients the option of taking the bank’s homeowners’ insurance policy, which would include all the clauses required by the bank to fulfil its own insurance policy requirements.  Alternatively, the banks offer clients the option of taking their own homeowners’ insurance – more on this later.

WHAT IS COVERED?

Homeowners’ insurance policies usually include cover for the physical structure, fixtures and fittings like built-in appliances, sanitary ware, geysers, etc. Types of events which are usually included in homeowners’ insurance policies are natural disasters such as floods, lightning and storms, as well as non-natural disasters such as fire, explosions and other accidental damages.  However, make a point of reading the policy for exclusions and add on any eventuality which might require cover.

HOW TO CHOOSE A POLICY:

When choosing a homeowners’ insurance policy, keep these very important points in mind:

• avoid looking at the amount of the premiums only as the conditions, inclusions and exclusions of the policy are of equal importance;
• opt for cover equivalent to the replacement value of your home as opposed to the value of your bond;
• due to property value increasing over time, review the sum insured often enough to avoid being under-insured.

ESSENTIAL POINTS TO INCLUDE IN YOUR POLICY:

Where a client has chosen their own insurance policy, and where the property is bonded, the bank will require that the policy conforms with the bank’s requirements before it will be accepted.  Each bank differs with their insurance requirements for clients opting for their own insurance.  Make sure that you’ve included the following important points in your policy:

• confirmation of the insurance company’s name;
• that the property is insured for the amount determined by the bank;
• confirmation of the property insured;
• the date of inception of the policy must be reflected;
• confirmation of the insurance premium;
• the policy number to be noted on the policy;
• the bank’s interest in the insured property must be noted;
• the bank’s interest must rank prior to your interest;
• that the policy will not be invalidated by any act or omission of yours if such act or omission occurs without the bank’s knowledge;
• confirmation that Sasria cover and Public liability Cover are included;
• confirmation that Subsidence and landslip cover, limited to the sum insured, is included in the policy where insisted by the bank and included in the home loan conditions;
• that the insurance company will take reasonable steps to notify the bank of changes affecting the policy during the duration of the agreement as well as failure on the part of the insured to pay the premiums.

Homeowners’ insurance is one of the most important insurance policies to have in place to ensure that you are adequately covered when unforeseen events occur.  Make sure that you choose the best option for you, and make sure that you understand it!

Having bought his dream home, Harry felt sure that his investment was secured against all unforeseen mishaps.  After all, he had taken out home owners insurance with one of the leading insurance companies, according to the conditions of his bond approval.  He could now happily begin paying the bond instalments.

Everything went well for a year or two, until Harry decided it was time to extend the home by adding another bedroom.  He had the plans drawn up by a friend of his, a respected local architect, but great (and unpleasant) was his surprise when he tried to lodge his plans at the municipality.  Here they told him that some of the existing improvements on his property were in fact illegal.  Upon further enquiry, it was determined that the previous owner had constructed the indoor braai area without approved plans.  As a result, the municipality refused to approve his new plans and, to his horror, he discovered that his home owner’s insurance policy specifically excludes any structures not approved by the local authority AT THE TIME OF CONSTRUCTION.  That meant that, even if he obtained the municipality’s approval afterwards, the indoor braai area would not be covered by the policy.  When Harry complained that the municipality had given a rates clearance on the property before it was transferred into his name, the municipal official just shrugged.

Harry’s only recourse now was to approach the previous owner, who may or may not defend any action against him and who may or may not have sufficient funds, should Harry suffer any damages pertaining to the braai room.  What happens if there is a leak and the rest of the house is flooded?  Who will pay if the walls collapse and damage occurs to the rest of the house?  Worse still, is that Harry would be obliged to disclose this information to a prospective purchaser, should he decide to sell the house.

The best solution to this kind of problem is, unfortunately, no longer available to Harry, namely “prevention is better than cure”.

So, when buying a home, make sure that the entire construction has approved building plans and know what:
•    is included and excluded in your home owners insurance policy; and
•    what your obligations are.