Property Insurance 101: What Every Homeowner Needs To Know

Property Insurance 101: What Every Homeowner Needs To Know

Your home is more than just bricks and mortar – it’s your sanctuary, your most valuable investment. It’s also a cornerstone of your financial security and the place where you store your most prized possessions. Home insurance is the best way to safeguard your home and everything in it, says Paul Stevens, CEO of Just Property, who shares essential insights every homeowner should know.

Types of home insurance

There are three main insurance types that homeowners need to differentiate between. 

1. Homeowners building insurance
   
   Homeowners' building insurance protects both the homeowner and the financial institution and is mandated by the bank when you register a bond to finance the purchase of a new home. It covers the structure of the home against loss or damage caused by unforeseen events. 
   
   Not all homeowners' building insurance policies are equal, though, so it is extremely important to read your policy document carefully to understand what is and isn’t covered. It is also important to be aware that while these policies cover the structure of the property and all permanent fittings, they do not cover household contents and personal items. 
   
   Another important factor to bear in mind is that insurance companies may have valuation issues and reject claims made in respect of unapproved structures on your property. Therefore, it is best practice to make sure all house plans have been approved before signing the offer to purchase. Structures that require approval include fixed patio awnings, swimming pools, carports, and even perimeter walls. 
   
   Cover varies from one insurance company to the next, in terms of both claim value and items covered, making it crucial for you to read and understand all the details contained in your policy document. Homeowners building insurance usually extends to (but is not limited to): 
   
2. • Accidental or malicious damage to the property
   • Structural damage arising from the likes of fire, explosions and natural disasters such as floods
   • Damages caused by leaking or burst geysers and pipes
   • Additional structures such as swimming pools, garages, carports, paving, perimeter walls and outbuildings
     

2. Bond insurance
   
   Bond insurance – not to be confused with homeowners building insurance – is a separate life policy that covers the balance owed on your bond in the event of the bondholder’s death or disability. Usually not obligatory, taking out bond insurance is a good way to protect your loved ones from outstanding bond debt in the event of unforeseen circumstances. Bond protection is particularly important if the home was purchased jointly (e.g., married couples or co-buyers) and one party passes away.

3. Home contents insurance
   
   Designed to protect the items inside your home against loss, damage or theft, home contents insurance generally covers personal household objects from theft, damage or loss, while they are in your home. Again, the specifics vary from one insurance company to the next so make sure you understand exactly what is, and what isn’t, covered by your policy. Such policies generally exclude fixed items such as light fittings, taps and fitted carpets, but include furniture, appliances such as televisions, microwave ovens, although this may vary by provider. 
   
   A useful analogy for determining whether or not something should be included in your home contents insurance is to imagine picking up your house, turning it upside down, and giving it a good shake. Everything that falls out should be included in your policy. 
   
   When determining the value of your home's contents for insurance purposes, be sure to include all contents. This will ensure an accurate value based on what you will need to pay today to replace the item, not what you paid for it three, six, or ten years ago. 
   
   Bear in mind that if you under- or over-insure your household contents, your insurance company may either reject your claim or pay out only a percentage of it. 
   
   As the cost of living increases, the replacement value of your possessions will change over time. For this reason, it is advisable to review the value of your household contents annually and inform your insurance company of any depreciation or changes, such as new appliances, or items you no longer own. 
   
   Possible exclusions:
4. • General wear and tear
   • Damage caused by pets
   • Certain items not specified in your policy
   • Items covered by a manufacturer’s warranty
   • Negligence
   • Accidental damage or loss
     

Where confusion creeps in

The most common types of property ownership in South Africa are freehold and sectional title, and they are distinctly different. 

1. Freehold ownership
   
   In the case of freehold property ownership, you own both the land and the dwelling(s) on it, and you are solely responsible for insuring the entire property. If you buy a freehold property within a security or gated estate, you have the same responsibilities as any other freehold property, but you may have to adhere to conditions stipulated by the complex’s homeowners association. 

2. Sectional title scheme ownership
   
   There are three elements to sectional title scheme ownership. Homeowners own a specific unit (or ‘section’) of a building or complex; they have a share of the ‘common areas’, such as driveways, gardens and lifts; and they may have ‘exclusive use’ of a portion of the common property – such as a garage, parking bay, balcony or storeroom. 
   
   Sectional schemes are managed by a Body Corporate, consisting of all owners of the building or complex. When you buy into a sectional scheme, you automatically become a member of the body corporate, which is responsible for maintaining and managing the common property. 
   
   Body corporate insurance—a legal entitlement for all developments in South Africa—covers the common property and buildings. The cost is usually shared by all owners and factored into the monthly levies. 
   
   While sectional title insurance covers the bricks and mortar structures of a scheme as well as all common use areas, each section owner is responsible for their own household contents insurance. 
   
   As is true of all insurance policies, owners in sectional title schemes should read and understand all policy documents to avoid potentially unpleasant surprises down the line.