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Inadequate insurance cover can mean financial ruin if you cannot replace your property

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 they are, in fact, underinsured and most will find out once only it’s too late, says Jill Lloyd, an area specialist for Lew Geffen Sotheby’s International Realty in Rondebosch and Claremont.

“This is especially common among older homeowners who have often not have updated their cover for many years and, as they are often on a fixed income, it can be financially crippling, if not devastating, when the payout falls far short of the replacement value.

“The elderly often have no idea how much their homes are worth. They probably paid about R44000 for it in the 1970s and are ill-prepared for something like fire.”

Recently, a couple in their 80s suffered a huge loss when their home worth around R5.5million, and filled with beautiful antiques, burnt to the ground. They were to receive a total payout of around R2m from their insurers, which covers only the value of the plot, Lloyd says.

“Never mind losing all their personal belongings and valuables, at an age where earning more money is no longer possible. This could see them forced to give up their independence and impose themselves on others – or even find themselves homeless.”

During the mortgage period, 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 up the right level of cover.

It is important that owners understand they must 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, she says.

Homeowners should, however, take the time to do their homework and select a policy that best suits their needs and situation, says Frans Labuschagne, director of Cape Town-based insurance brokerage FJL Consultants.

“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, so certain policies may suit people’s unique needs better than others.

“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.”

But selecting the right policy and ensuring you are adequately covered is not always as simple as it might seem. Not many people know how to determine the correct overall value that should be ascribed to the property.

Labuschagne says: “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.

“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 and gateposts and gates, including all their mechanisms and fences.”

He adds that 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.”

Lloyd adds: “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.

“After enduring a traumatic experience like seeing your home and all your possessions go up in flames, the last thing you need is to face hefty bills and financial strain because of inadequate insurance.”

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