Is your house insurance adequate?

Is your house insurance adequate?

Insuring the bricks and mortar of your home is a good idea. easyDIY spoke to Amie Venter of Old Mutual iWYZE to find out why.

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Your home is probably the most expensive asset you have, and yet not everyone realises that there are two types of home insurance. Buildings insurance covers the structure of your home, including the fixtures and fittings, while household contents insurance covers the furnishings and valuables typically found inside a home. Many people assume that when they have household contents insurance, they are covered for all risk, but actually it’s the building insurance that covers your physical structure for risk from events like storm damage and burst geysers, fires and earthquakes. “It’s important to understand that there’s a distinction between the two,” says Amie Venter of Old Mutual iWYZE.
One classic mistake homeowners make is not understanding what value they should be insuring their house for, says Amie. “That value is the current replacement cost of the entire building,” he explains. “It’s not the price you paid when you bought the house – it’s not the market value – it is the cost that you would incur if you had to replace that house on that piece of property.”


GOOD TO KNOW
If you bought in a depressed market, it is possible for a built house to be cheaper than the cost of building that house. Keep that in mind when you’re insuring for replacement value.


 

REPLACEMENT COST
Amie advises considering this scenario: your house burns down and you’re stuck with the wreck of the house on that piece of land. You’ll need to employ a contractor to break down the remains of the house, clear the site of rubble, find an architect to draw up plans for the new house and follow the process of having plans approved through your local council. You’ll then need a building contractor to rebuild the house up to a similar standard of what it is today. Building insurance wouldn’t allow you to replace a three-bedroomed house with a six-bedroomed house – the cost should be estimated against the cost of replacing the existing structure. “That total cost of replacement is what you should be insuring for,” he recommends.

 


TOP TIP

Your insurer will increase the insured cost annually based on their estimate of building cost inflation, so you don’t need to update your policy every year, advises Amie.


 

RENOVATION SAVVY
If you’re doing any renovation or building work on your house, you need to consider whether that work will change this total replacement cost. “For example, if you’re redoing a bathroom and replacing all the tiles and fittings, you haven’t really changed the replacement cost of the house, because you’ve replaced like with like,” explains Amie. You may have improved the market value of the property, but you haven’t affected the replacement cost.
However, if you undertake additions, for example converting a garage into a granny flat with a bathroom and kitchenette, those additions would affect the replacement cost, because you would now have to replace the house with those additions. “In that instance you need to contact your insurer and update the insured value to accurately reflect the current replacement cost of the house,” explains Amie.

 


GOOD TO KNOW
iWYZE is the first short-term insurer in SA to offer a 100% Buildings insurance No-Claim Reward. If you take Buildings insurance for your house, Household Valuables insurance for its contents and Vehicle insurance on at least one car, and if you don’t claim against your Buildings insurance policy for six years, you will get all of your Buildings insurance premiums back in cash.