All the insurance you need as a homeowner
As a new home-owner, you are going to need three types of insurance – at least one of which may be completely new to you.
This is what is known as Home Owner’s Cover (HOC) and it is essentially insurance against damage to the actual “bricks and mortar” structure of your home in the event of fire, flood, hail, high winds and various other natural and manmade disasters, like someone driving through your garden wall or your geyser bursting.
The benefit of this type of insurance is that you will not end up having to pay off a bond on a home that may have been destroyed or seriously damaged, while the bank still gets paid even though the property that was the security for your home loan is gone.
For this reason, says Carl Coetzee, CEO of SA’s foremost home loan originator BetterBond*: “The bank through which you obtain your home loan will generally insist on you having HOC, and it will usually also offer you an in-house policy with an annual premium that is automatically deducted from your home loan account.
“And while you don’t have to accept this policy and can source your own HOC, the bank will be entitled to request proof of insurance and to determine whether the cover is adequate. You will also need to make your own arrangements to pay the premiums.”
As with all forms of insurance, he says, you will need to make careful comparisons of exactly what is covered in the HOC policies offered by different companies, including the bank-owned insurers. “You need to ask, for example, whether there are there any restrictions or exclusions, what if any additional benefits are offered, what excess is payable when making a claim, what the annual premium increase will be and what the company’s claim payment track record is.”
Meanwhile if you have bought a sectional title property, Coetzee notes, the HOC insurance for your unit will fall under the overall policy for the whole sectional title scheme, with the premiums being paid by the body corporate. “And in this case as well as with HOC on a freehold property, you should check very carefully to see exactly what is covered by the specific policy, and that your home is insured for the full replacement value, not the current market value.”
Bond insurance
The second type of insurance you will need may also be new to you if you have not taken out a big loan before, he says. This is called credit life insurance and is essentially a policy that insures the creditor (in this case the bank) against your death or disability.
The benefits of this type of insurance are that the outstanding balance on your home loan would immediately get paid off should something happen to you. This means that your family would be able to carry on living in a fully-paid-off home if you died, and that you would not have to worry about your home loan repayments if you were permanently disabled.
“Also known as ‘bond insurance’, this is thus essential cover for home-owners to have,” says Coetzee.
“It is also very specific, which means that the proceeds can only be used to settle the outstanding balance of your home loan, so there is no danger that anyone will be able to use them to settle other debts or buy luxury items.
“And some bond insurance policies will even cover you for temporary disability and retrenchment by paying the bond instalments for a specific period – once again ensuring that you and your family will be able to stay in your home while you recover or find alternative employment.”
Contents cover
The third type of insurance you will require, he says, is the familiar cover many of us have for the contents of our homes such as furniture, appliances and electronics as well as our personal belongings like jewellery, clothes and sports equipment.
“This is very commonly combined with our vehicle insurance, and in many cases these policies also provide cover against liability claims if someone should get injured on your property or in your car. However, as a home-owner you now need to make sure this is included.”
Finally, says Coetzee, you should make it a habit to check all your insurance policies at least once a year and make sure that the premiums are adjusted upwards when necessary to keep up with inflation and/ or the increased value of your assets. In the case of vehicles, however, they should be adjusted downwards to account for depreciation.
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