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Insure your home for its cost to rebuild

Thursday, 23 September 2010 19:48
Under-Insuring_Your_HomeEvery homeowner knows the importance of home insurance, yet perhaps not the importance of specifying the exact amount for which it must be insured. The problem with over-insuring the home is that the insurer will only ever pay out the full value of the house at the time of the claim. This means that you could be paying for an additional insurance premium that you will never receive. While not evident at face value, the accumulative cost of over-insuring is high and unnecessary.

Under-insuring your home
That said, under-insuring your home can be financially devastating. No matter what the value of your insurance, if less than the full value of the home, it will cost you money. Insurance companies only ever pay out the percentage of the damage according to the ratio of the home insurance to the cost of the home.

For example, if your home is valued at R1 million and you’re only insured for R500 000, you’re covered for 50 percent of the home. If your geyser bursts and the claim damage amounts to R10,000, your insurer will only pay out R5,000: 50 percent of the value of the damage. You will be required to cover the rest of the amount yourself, on top of the excess.

How much to insure your home for
To calculate the cost of your home insurance policy, you’ll need to determine how much it will cost to rebuild your home in the event that it is completely destroyed. This amount should also cater for inflation and should be updated every year. Also factor in the inflation cost of building supplies.

Your insurance company should automatically increase your home insurance premiums annually to cater for this inflation. You should reassess the extent and cost of your home insurance every five years if they do.
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