Home owners’ insurance
This insurance covers the structures and buildings against eventualities such as fire and flood. If you take a home loan through a bank when purchasing your home, they will insist that you take out home owner insurance. The following characteristics apply:
Most policies will cover your home against damage or destruction from any of the following: fire, lightening, storm, wind, hail, flood, vandalism, earthquake, burst pipes or geysers and land subsidence.
The cover generally extends to include the main house, any outbuildings, water, electricity, sewerage and telephone connections, paths, driveways, walls, gates, fences, swimming pools and tennis courts.
The policies may, in addition to the cost of repairing or rebuilding your home, also pay for:
The rent of another house (for a period of time) while your home is being rebuilt.
The costs of professionals’ fees, for example architects or consulting engineers.
The costs of fire-fighting.
The costs of the removal of trees.
It is important to ensure that the house is free from major defects on purchase – if necessary obtain a professional assessment before signing any offer to purchase.
The insurer will not pay out more than the amount the buildings are insured for, even if the cost to rebuild your home is substantially more than this sum insured. It is important therefore that you update your policy sum insured on at least an annual basis to keep track with building costs.
Mortgage protection insurance
Mortgage protection insurance covers the owner if she is unable to make a payment on the bond due to an unexpected event, such as death, disability or retrenchment. This insurance will either cover the monthly mortgage repayment amount on temporary disability or retrenchment or, in the event of death or permanent disability, arrange for the full repayment of the bond.
There are various options on the type and extent of protection available. The following factors will assist in deciding on the options that fit best:
Check the small print – depending on your policy, you may be subject to a medical examination and/or certain exclusions on your policy
Get the right cover for your needs – ensure that your policy addresses your unique circumstances and covers all eventualities. Consider insuring other contributors to the bond if you share the repayments with a partner.
Know what you are paying for - ensure that you are paying the best price for the cover you need. Remember that your bond is a reducing liability. Certain policies allocate a portion of your premium to an investment portfolio. Ask yourself whether you need to pay the extra premium for this investment allocation, and if you could not do better by investing this additional premium elsewhere.
Know your rights – You are not obliged to take the loan providers’ insurance product. In the Long Term Insurance Act it is made clear that clients have free choice as to the insurer, the intermediary and the policy they wish to use.
Published with permission from Home Front, August 2004