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Homeowners' Insurance
Tuesday, August 26, 2014 - 02:16
Don’t be misled

Owning a home is one of the most important investments you’ll ever make. Once you’ve overcome all the hurdles and red tape of purchasing a home, you should want to protect your investment by making sure it is insured against any potential damage.

“Few people actually understand that home insurance has two distinct components – the first being buildings insurance to cover the structure of your home, including the fixtures and fittings, and the second being household contents insurance covering the valuables typically found inside a home,” says CE of Old Mutual iWYZE, Willem Smith.
Many people only protect the contents of their home with a valuables or householder’s insurance policy. This provides cover in the event of theft or damage to the movable items in your home.
On the other hand buildings insurance, also referred to as ‘Homeowners’ Insurance’ provides cover for the physical structure of your home against disasters ranging from storm damage and burst geysers, to fires and earthquakes. This cover will include ‘built-in-cupboards’, fitted carpets, swimming pools, driveway gates – in fact all the attached and fixed items that would normally be sold with the property.
Some insurers always refer to this as ‘Building Insurance’, by the way, but don’t be misled. There is cover known as building insurance but it is not the same as the domestic type of cover you need. Building insurance is more of a corporate/commercial type of policy, which would include car parks, goods entrances, fire escapes and telephone switch boards, and that sort of thing. What we are talking about here is Homeowner’s insurance, the cover an owner of a home needs to buy. If you are renting, of course, that would be the job of the actual owner, the landlord.
While natural disasters may be at the bottom of your list of concerns high-cost events can have a devastating impact. Warns Smith, “Imagine losing your home in a flood or fire and having to bear the cost of rebuilding it. It certainly doesn’t happen often, but the cost would financially ruin most of us.”
There are some important considerations when selecting a homeowner’s insurance policy. If the property is purchased through a bank loan the borrower will be required by the bank to buy homeowner’s insurance, and it will punt its own offering. However, you do not have to take out the insurance with the respective bondholder – you are entitled to choose your own policy from an underwriter of your choice.
It’s often worth doing some research and finding the best option for your needs. Sometimes it is cost effective to combine the homeowner’s policy with all your personal lines insurance needs, such as cover for motor, personal valuables, things you carry with you and, of course, the contents of your home.
Homeowner’s insurance is intended to cover you against unforeseen and sudden disasters. Generally, these would be major events causing significant financial strain on you. You may be tempted to claim when a pipe starts leaking, or a cricket ball crashes through a window, or a gutter comes loose from your roof. “Think twice about this,” says Smith, “because your insurer carefully tracks your claims history and feeds this information into their formula for determining your premium.” You may just get an unpleasant surprise when your policy renews, and are faced with a boost in premium rate because you have been submitting lots of claims.
“Also remember that rising damp, leaking roofs and similar results of poor workmanship or inferior building materials, are generally not covered under the policy,” says Smith. “While building standards in our country often seem disastrous, trying to frame such damage to your house as the consequence of some natural disaster, is only likely to get your claim rejected or your policy cancelled.” Honesty is the best policy and if you use insurance in the way it is intended to be used, you are likely to spend a minimum in premiums while enjoying complete peace of mind that you are covered in case of a real disaster.
Many insurance policies actually reward you for not claiming. “Our product, iWYZE, for example, offers a 100% refund as a No-Claim Reward. If you take insurance for your house, household valuables and contents, and motor cover on at least one car, and you don’t claim against your buildings insurance policy for six years, you will get all of your insurance premiums back,” he explains.
He is quick to add that this is not an attempt to discourage clients from claiming. “It is rather a reward for those who use their insurance for its intended purpose. If a real disaster were to happen then the loss of a premium refund would not discourage anyone from claiming, but if that risk never materialises then this benefit effectively rewards the client with some real value.”

Know your risk profile

All insurers base their premiums on your ‘risk factors’. When it comes to your homeowner’s insurance policy, these would include the location of your house and the claims history in the area as far as natural disasters and crime are concerned, as well as the details of your own property, such as its type of construction, type of roof, roofing material and so on.
“Different insurers use different rating factors feeding into premium calculations of different levels of sophistication. It may be worth shopping around until you find a policy that gives you the right level of cover, from a trustworthy supplier, at the right premium.”
Make sure your premiums are always paid on time. Insurance is not like a bond payment where you can probably miss a few payments before the bank starts squeaking. But insurers are more ruthless, surprisingly enough. The moment you miss a premium, your insurer will suspend cover and if that disaster chooses to happen after that, you won’t get your claim entertained.
 

Copyright © Insurance Times and Investments® Vol:27.8 1st August, 2014
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