How Much Home Insurance Should You Get? - 12 Aug 2009 09:18
The reason home insurance is compulsory for bond owners, is because it gives the bank or financier who loaned you the credit peace of mind that, in any event, their investment is secure. Truth is though, home insurance can give you as much peace of mind, but only if you’re insured for the proper value.
Household insurance distinguishes between market value and insurance value. The market value of your home is the price someone would be willing to pay for your property and the structure on it if you ever sold it. Insurance value is the present cost of rebuilding your home in the same location and with the same materials as it currently is, in the event of a disaster, such as a flood or fire. Your insurance policy should cover not only the rebuilding of your home in its entirety but also the cost of debris removal and other auxiliary costs.
If you are underinsured your claim will not be met in full. Claims work on an average or percentage ratio. If your house is valued at R1m but you are insured for R800,000 then you are only covered for 80% of the value of your home. This means that if your house suffers damages to the value of R100,000 in, say a flood, you can only claim for 80% of the damages. You will receive a maximum of R80,000 only from your claim. the same is true for contents insurance. If you insure your contents for only 80% of their replacement value, that’s all you’re going to get out. Even if you’re covered for up to R250,000 and the damage is only R10,000 - you’ll only be able to claim R8,000.
It’s always better to err on the side of caution, and over-insure when deciding how much to insure your home for.
The reason home insurance is compulsory for bond owners, is because it gives the bank or financier who loaned you the credit peace of mind that, in any event, their investment is secure. Truth is though, home insurance can give you as much peace of mind, but only if you’re insured for the proper value.
Household insurance distinguishes between market value and insurance value. The market value of your home is the price someone would be willing to pay for your property and the structure on it if you ever sold it. Insurance value is the present cost of rebuilding your home in the same location and with the same materials as it currently is, in the event of a disaster, such as a flood or fire. Your insurance policy should cover not only the rebuilding of your home in its entirety but also the cost of debris removal and other auxiliary costs.
If you are underinsured your claim will not be met in full. Claims work on an average or percentage ratio. If your house is valued at R1m but you are insured for R800,000 then you are only covered for 80% of the value of your home. This means that if your house suffers damages to the value of R100,000 in, say a flood, you can only claim for 80% of the damages. You will receive a maximum of R80,000 only from your claim. the same is true for contents insurance. If you insure your contents for only 80% of their replacement value, that’s all you’re going to get out. Even if you’re covered for up to R250,000 and the damage is only R10,000 - you’ll only be able to claim R8,000.
It’s always better to err on the side of caution, and over-insure when deciding how much to insure your home for.