Home Loan Talk - Insurance and Assurance

Private Property South Africa
Denise Simpson

When applying for a home loan, clients are often not aware of the costs

associated with insurance and assurance.

As a homeowner you need two types of insurance to protect yourself against the

unforeseen. Home Owners Insurance covers the structure of your property, while

household insurance covers the contents.

Home Owners Insurance

Home Owners Insurance is a mandatory requirement by the banks and is debited

against your home loan. The banks must ensure that the property that is

mortgaged to them is adequately covered for fire, water damage and any other

unexpected event that causes damage or destruction to the property. This is a

very important product as the bank must be able to recover the loan should such

an event occur. In some cases the banks do allow clients to shop around for

their own insurance, but this is not the norm. If you do organise your own

insurance, the banks will need proof from the insurance company of this security

and that the bank's interest is noted in the policy.

Freehold Insurance

If the home is freehold, the bank will use their preferred insurance company,

which normally offers market-related premiums. The costs are usually debited

against the home loan account annually and the premiums divided by twelve, so

the charges are included in the bond repayments. This is reviewed periodically

to ensure that adequate cover is in place.

Homeowners should be aware that if they have done renovations or added new and

expensive finishes to their home, that they should immediately notify their bank

of the improvements. An assessor will then visit the property to reassess its

value and amend the cover.

Often people ask why the insurance value is different to the market value. This

is because the land price is not included in the cover, so only the brick and

mortar replacement value is accounted for. Home Owners Insurance does not cover

personal possessions like furniture, laptops, etc. and separate household

insurance must be taken out by the owner.

Sectional Title Insurance

The same rule applies to sectional title property except that the body corporate

is responsible for collecting the premiums via the monthly levy each owner pays.

They normally have a 'blanket' cover including each unit, and individual owners

should also check that the cover is adequate to replace the property in the

event of any disaster. If a bond is in place, the body corporate is required to

give the bank details of the insurance policy and the amount the property is

insured for, as well as make sure that the insurance company notes the bank's

interest in the policy.

Assurance - Mortgage Protection

This type of insurance is cover in the event of death, disability and dread

disease. It is not mandatory, but it is always sensible to take out, especially

for young first-time buyers who are generally healthy and so their premiums

should be reasonable and affordable. It never expires and can be used again

without renewing it in the event of cancelling the bond and buying another

property i.e. it is transferable.

This cover is commonly known as Mortgage Protection, which ensures that in the

event of death or any other unfortunate event, that the family has peace of mind

that their house is not compromised. It is bad enough having to cope with death

or disability, but you don't want to have to worry about financial.

Often the bank consultant will call a new client that has taken out a bond and

offer their services to source mortgage protection. The policy premium can be

debited against the home loan, which is convenient, and in the event of any

claim, the policy will be with the bank and they will handle any claim or query

you have.

Life insurance is very important to have whenever a big debt has been incurred.

It may not be mandatory, but it is prudent to make sure that you are covered for

every eventuality.

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