Property insurance: Tips & traps

From sneaky exclusions, like electricity surges, to what the body corporate should cover.

"Most people view insurance as a grudge payment, a necessary evil so to speak, and insurance for property is no different," says Dirk McIntosh, insurance broker at Lyall Morgan & Associates.

A property will in most cases be the largest asset most people will own and as solid as those foundations may seem, your property is vulnerable to a host of dangers and it makes sense to insure your prime asset against perils such as flood, fire, falling trees, burglary, earthquakes, lightning, falling meteors and other unforeseen incidents and accidents and those not so unforeseen like theft.

Sure, most dangers are a long shot at best, and unlikely to happen, but the chance of losing everything makes the monthly payments worthwhile. You don't wear a safety belt because you think you'll have an accident but in case.

If your home is bonded the bank will impose a condition that you take out homeowner's insurance cover for the structure. As the bank uses your home as collateral against the loan, it wants the value of this asset to be protected.

Even if you do not have a home loan, or mortgage, it still makes sense to take out insurance. There are two main types of property insurance:

* Homeowner's insurance will cover the structure itself, and any built-in appliances, fixtures and fittings, cupboards, fitted floor coverings, geysers and the like. It is financial protection against natural disasters as well as accidental damage; and

* Household insurance insures the contents of the house against damage and theft. Here, almost anything can be covered, from furniture and personal effects to electrical equipment, big screen TVs and your new golf clubs, depending on the level of insurance you choose. You might pay for general cover and specify certain items over a certain value.

The cost of property insurance will vary accordingly to the value of the property, your insurance claims' track record and various other factors. It is possible to reduce your premium when obtaining household insurance by excluding certain cover, for example for burglary/theft (unwise, but possible), or increase the excess amount you pay during a claim.

Other factors that have an influence on your premium are: the area in which you live, the security at the residence, the quality of the construction of the roof and walls (non-standard walls and thatched roof increases the risk and premium), your hopefully claim-free years as an insured and the excess you agree to pay when you have a claim.

It is important to specify what you are insured for and to know exactly what you are covered for.

For example most domestic insurance policies do not cover power surges. Planned power surges do not qualify for compensation from an insurance company. However, if power goes off without warning, a policyholder could theoretically ask Eskom for compensation. Good luck. See more on this here.

The flood insurance provided by your buildings' insurance, for example, might only cover you for damages that you can prove have been caused by flooding. Any additional damages will not be paid for unless detailed in the documentation. So read the fine print, all of it, understand the contract and negotiate yourself a deal. The industry is competitive so do your homework first.

According to McIntosh: "Our insurance market is highly competitive. Both the traditional and direct insurers (where there is no intermediary between you and the insurance company) are driven by profitability and market share and both offer innovative and competitive products and premiums."

He says: "The most important consideration for the client is to know who you are placing your risk with. Who is the insurer? Is it financially strong enough to meet its liabilities? Who owns it? Does it offer both good underwriting and claims' services? Is it reputable with a solid track record?"

Those living in a sectional title unit should be aware of exactly what insurance cover is held by the body corporate so you do not end up liable for damages.
The Sectional Title Act makes it clear that it is the responsibility of the body corporate to insure the building and all improvements to the common property within the scheme to their full replacement value, against any such risks and damages as may be prescribed.

Many policies also offer an option for add-ons such as loss of rent as the result of an insured risk, damage resulting from municipal utility connections on your property, and third party liability.

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