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Your home is one of the most expensive assets you will ever own. There is a long list of unfortunate things that can happen to it — from common annoyances like a burst geyser that ruins your carpet to unlikely, but devastating events like a fire that burns it to the ground. That’s where home building insurance can save you from significant financial losses as well as give you peace of mind.
With building costs typically between R10,000 and R20,000 per square metre, completely rebuilding an average-sized three-bedroom home could cost between R1.5 million and R3 million, depending on where you live. The costs could be even more if you have premium finishings and fittings.
Ernest North, co-founder of fully digital platform Naked Insurance, says that a building insurance policy covers incidents that damage a home’s physical structures and permanent fixtures. The risks building insurance can protect you from range from natural events like floods, wind or lightning through to power surges that fry your gate motor or robbers that break down doors to gain access to your home.
“Insurers often say that if you could turn your home upside down, anything that will not fall out is a part of the home, and should thus be added to your building insurance policy. For the rest of the stuff inside your home, you would buy contents insurance,” says North. Not only is buildings insurance a good idea, it’s also compulsory if you are financing your home through a bank.
North says that you should strive to insure your home for what it will cost to clear and rebuild your home, rather than for its market value including the land. You don’t want to over-insure your building because that means you will pay a higher than necessary premium and not get paid out more than the costs.
But you also don’t want to under-insure because then an insurer will not pay out enough to cover repair or replacement of your fixtures or structures after a claim. Building costs are rising around 0.2% month-on-month—which means you should frequently check that you’ve insured your home for its full value with inflation taken into account.
Insure for replacement value
The replacement value of your home will include all the costs of rebuilding, including building contractors’ fees, demolition costs, removal of rubble, municipal approvals and building materials. Some of these costs vary according to where you live, due to differences in labour and transport costs. It’s important to remember some of the non-obvious elements such as:
- Paving, driveways and paths;
- Gates and gate motors;
- Swimming pools and their pumps;
- External walls;
- Fittings and finishings;
- Flooring and carpeting;
- JoJo tanks, generators fixed to the property, inverters fitted to the distribution board, and rooftop solar panels; and
- Any other investments you’ve made in extending and improving your property.
North says that many homeowners are investing in renewables to manage the loadshedding crisis. Given that the costs of solar panels, inverters and batteries can run from tens of thousands to hundreds of thousands of rand, it’s wise to update your policy when you install a solar solution for your home.
Consider getting a professional valuation
The best way to establish your home’s estimated replacement value is to ask a property valuation expert or a building contractor to evaluate it. They will be able to analyse your home and compile a full report about the value of the structures and fittings. “You can also find out the average cost per square meter of building in your area and multiply it by the size of your home to get a rough estimate,” says North.
The value your home is insured for doesn’t necessarily need to be the same as the purchase price or the market value. For example:
- The market value of many properties in Johannesburg has gone down significantly in the last year or two. But the cost of rebuilding those homes, if they were to burn down, would still have grown.
- A home in a remote town may only have a market value of R1 Million, but considering its technical construction on a steep mountain side, the home should be insured for three times as much.
Many people assume that they will need to insure their home with the preferred provider associated with the bank that granted them a home loan. But North says you are free to choose your own provider, so it’s wise to shop around to ensure you’re getting the best deal. Today, it’s easy to get a binding online quote from a digital provider’s app or website for comparative purposes.
These platforms use technology and artificial intelligence to deliver more convenient, relevant, affordable and transparent customer experiences. Because they are automated and efficient, they can offer significant premium savings over the old-school insurer. It takes just a few seconds to find out whether you’re getting a fair premium and sign up if you like what you see.