Homeowners grudgingly fork out for insurance every month, consoling themselves that at least if something does happen, they are covered, but many don’t realise that they are, in fact, underinsured - and unfortunately most will only find out once it's too late.
This is according to Jill Lloyd, a veteran agent and area specialist for Lew Geffen Sotheby’s International Realty in Rondebosch and Claremont, who has witnessed the repercussions of being underinsured on a number of occasions.
“This is especially common among older homeowners who have often not updated their insurance policies in many years and, as they are often on a fixed income from pension by then, it can be financially crippling, if not devastating, when the payout falls far short of the replacement value,” says Lloyd.
“The elderly often have no idea how much their homes are worth. They probably paid about R44 000 for it in the ‘70s and, as they are convinced that they are going out feet first, they are ill prepared for something like fire.”
Most recently, she says a couple in their 80s suffered a huge loss when their home worth around R5.5 million and filled with beautiful antiques burnt to the ground, as they will only be receiving a total payout of around R2 million from their insurance company which only covers the value of the plot.
Never mind all their personal belongings and valuables, those at an age where earning more money is no longer possible could be forced to give up their independence and impose themselves on others - or even find themselves homeless.
Lloyd says while there is a home loan, banks ensure that there is insurance in place for at least the amount of the bond, but once the bond has been repaid, many homeowners forget to keep their eye on the ball in this aspect.
It is important that owners understand that they need to adequately insure for the replacement value of the building, not just the market value, plus all the contents, and they must specify items that are valuable.
Frans Labuschagne, Director of Cape Town-based insurance brokerage, FJL Consultants, agrees, but cautions that homeowners should take the time to do their homework and select a policy that best suits their needs and situation.
Although the standard cover for all insurance is basically the same, each and every insurer and underwriter differs to a degree, with different bells and whistles on offer, and certain policies may therefore suit your unique needs better than others, says Labuschagne.
The way claims are settled also differs from company to company as some adhere strictly to their underwriting, whereas others are more flexible and open to negotiation where possible.
However, selecting the right policy and ensuring you are adequately covered is not always as simple as it may seem when it comes to determining the correct overall value that should be ascribed to the property.
“First you have to establish exactly which components are considered part of the building or structure as there are several elements over and above the bricks and mortar of the primary construction and obvious outbuildings, which must be valued and included in the overall amount,” says Labuschagne.
“Many people don’t realise that in order to be adequately insured, the following elements should also be accurately valued: fixtures and fittings, fixed recreational and ornamental structures, paved and surfaced areas of brick, concrete, asphalt, synthetic grass or stone (not gravel), boundary and other walls, gate posts and gates, including all their mechanisms, and fences.”
He says in order to enjoy the benefits of full cover, it is important to keep your property evaluation up to date and to advise your insurer when any alterations or renovations are done.
The insurer will increase your premiums annually, taking inflation and building material costs into consideration, but it is the homeowner’s responsibility to request a reassessment if they have carried out any renovations.
“It’s impossible to anticipate, let alone imagine, ourselves and our families in potentially life-threatening situations or even with nowhere to live, but unfortunately such situations are a very real possibility, and if they do arise, the only way to cope is to be thoroughly prepared,” says Lloyd.
“After enduring a traumatic experience like seeing your home and all your possessions going up in flames, the last thing you need is to face hefty bills and financial strain because of inadequate insurance.”
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