In­surance tips to buy­ing a house

Business Day - Home Front - - HOMEFRONT -

AHOUSE is prob­a­bly one of the most ex­pen­sive pur­chases con­sumers will make in their life­time. It is there­fore vi­tally im­por­tant to fully un­der­stand the in­surance im­pli­ca­tions when pur­chas­ing a new home so that you can en­sure you are fi­nan­cially cov­ered in the event of any loss or dam­age. Step one: start date of the cover The most im­por­tant in­surance ad­vice for a new home owner is to en­sure that you have ar­ranged for the cover to start on the day trans­fer takes place. Some in­surance com­pa­nies may even in­sure your prop­erty if you have taken oc­cu­pa­tion, even though the prop­erty trans­fer is not fi­nalised yet. Warn­ing: high pre­mi­ums ahead

When in­sur­ing a new home, con­sumers of­ten do not re­alise that non-stan­dard con­struc­tion types, such as a thatch roof or wooden struc­tures, will au­to­mat­i­cally mean a higher in­surance pre­mium as these are con­sid­ered a higher fire haz­ard.

His­toric prop­er­ties may also be more ex­pen­sive to in­sure as they will usu­ally cost more to re­pair. If you are look­ing to re­duce your in­surance pre­mi­ums, it may be best to avoid houses that fall into this cat­e­gory. Com­plex is­sue If you are pur­chas­ing a house in a com­plex un­der a sec­tional ti­tle, the build­ing will be cov­ered by the body cor­po­rate build­ing in­surance pol­icy and pre­mium pay­ment usu­ally forms part of the monthly levy. Al­ways ask for a copy of this pol­icy as it may ex­clude cer­tain cover such as dam­age caused by gey­sers, in which case you may need to take out your own in­surance against this. Re­view the sur­round­ing area It is a good idea to find out if the area you are buy­ing in is con­sid­ered high risk for sub­si­dence or land­slip dam­age or if the prop­erty has suf­fered sim­i­lar dam­age prior to sale. Banks of­ten re­quire cover against dam­age caused by subsi- In­surance im­pli­ca­tions — ques­tions to ask your es­tate agent when pur­chas­ing a house: When was the home built? How old are the plumb­ing and elec­tri­cal sys­tems?

Have there been any bur­glar­ies in the area in the last year?

Are there any land claims / liens on the prop­erty?

Does the prop­erty fall into a high risk area for floods or fires?

Is the area con­sid­ered high risk for sub­si­dence or a land­slip? dence or land­slip be­fore they can ap­prove the loan. You may also not be able to get in­surance cover un­less a ge­o­graph­i­cal sur­vey is com­pleted. The onus usu­ally rests with you as the homeowner to en­sure the sur­vey is con­ducted.

In ad­di­tion, it is pru­dent to find out whether the prop­erty has been ex­posed to flood claims in re­cent years, es­pe­cially if it is lo­cated near the sea or on river frontage. Cer­tain ar­eas in SA have be­come unin­sur­able from a flood risk per­spec­tive and this could se­verely im­pact on the abil­ity to in­sure against these risks and the re­sale value of the prop­erty. Mit­i­gate un­der­in­sur­ance risks When you pur­chase build­ing in­surance, you are cov­ered for ev­ery­thing ex­cept the land. Un­der­stand that the amount you in­sure for will be the re­place­ment value of the struc­ture, in­clud­ing out­build­ings, and not the mar­ket value of the prop­erty. Your in­surance may there­fore be less than the value you ac­tu­ally pur­chased the prop­erty for.

It is im­por­tant to en­sure that the re­place­ment value in­cludes all costs, such as the clear­ing of rub­ble and ar­chi­tects’ and sur­vey­ors’ fees, or you may not be able to re­build the ex­act home you had be­fore. Also un­der­stand ex­actly how your in­surance com­pany de­ter­mines in­surance re­place­ment costs, as this may vary from in­surer to in­surer. Some in­surance com­pa­nies or un­der­writ­ers, of­fer a vol­un­tary val­u­a­tion of your prop­erty at the in­cep­tion of your cover to de­ter­mine the cor­rect in­surance re­place­ment value and as a re­sult avoid the risk of un­der in­surance.

Most in­surance com­pa­nies will ap­ply the av­er­age con­di­tion to your set­tle­ment amount in the event of un­der in­surance and that a rel­a­tively low un­der in­surance per­cent­age of say 20% on a R2m home can have a dev­as­tat­ing ef­fect on your per­sonal fi­nan­cial sit­u­a­tion if you are faced with a R1m fire loss. In this in­stance in­sur­ers may deduct as much as R200 000 from your claim. Pol­icy ba­sics Find out if your pol­icy is an all risks cover or per­ils only cover. All risks poli­cies cover ev­ery­thing ex­cept the ex­clu­sions spec­i­fied by the con­tract which means you have a wider cover.

Ask your bro­ker what im­prove­ments can be done to re­duce your pre­mi­ums, for ex­am­ple, in­stalling ad­di­tional se­cu­rity mea­sures such as an alarm or smoke de­tec­tors could en­sure you get a dis­counted rate. It is also pos­si­ble to re­duce your pre­mi­ums by tak­ing a higher ex­cess or de­ductible.

If you run a busi­ness from home or rent out the home as a hol­i­day house for ad­di­tional in­come, en­sure your bro­ker and risk car­rier are aware of this be­cause you may need spe­cialised li­a­bil­ity cover.

With these tips in mind, you can avoid any in­surance pit­falls and make an in­formed de­ci­sion when in­sur­ing your new home. Re­mem­ber, it is al­ways best to seek the ad­vice of a fi­nan­cial ad­vi­sor who is fa­mil­iar with the nec­es­sary re­quire­ments for in­sur­ing a home.

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