A building insurance, also known as home insurance, is a type of insurance that covers your building against any losses or damages. These damages may be from natural disasters or man-made. Let’s look at what a building insurance is and what it covers.
Why do you need a building insurance?
You need a building insurance to ensure that any structural damage to your building gets fixed as soon as possible. It might be very difficult to have enough money saved up to cover yourself. This might lead to you permanently losing your home.
You can’t take out a mortgage loan without taking out any home insurance. Banks require you to take a building insurance when you are applying for a mortgage loan. The actual cost in insurance that you pay is often less than the value of your house.
Let’s say for example you bought a house worth R1.3 million and pay R600 per month on insurance. After 20 years you would have paid a total of R144 000 but the value of your house would have more than tripled by that time. Your insurance will cover you if your house burns down and needs R800 000 to be restored even though you only paid R144 000 in total.
What does a building insurance cover?
A building insurance covers the main structure of your building and other immovable objects inside the building. These include built in kitchens, built-in wardrobes, bath tubs, windows, geyser and built in appliances.
There are cases where the insurance does not cover you, it’s often detailed in the policy. Which most people sign without reading, building insurance covers loss or damage caused by fire, explosion and earthquakes, and other acts of nature.
You will have an option of ensuring your building and its contents at a replacement cost or actual cash value policy. This applies when you decide to ensure the items that are inside the building, these items may be appliances and electronics and furniture.
With the replacement cost option; everything is replaced with its equivalent. If you had bought a Samsung TV for R10 000, your TV will be replaced with an equivalent or that exact same TV. With the cash value policy, you only get money that is worth the value of your items. Depreciation is taken into account with the cash value policy, your R10 000 TV might be worth R3 000 down the line and that’s what you will get.
The actual cash value policy could leave you out of funds should you suffer total loss. This is your valuables might have depreciated and you wouldn’t be able to replace everything you had.
What does a building insurance not cover?
There are things that aren’t covered by a home insurance, which might end up with homeowners being very angry. We studied the insurance policy offered by OUTsurance. Here are some of the things that they don’t cover.
- Matching furniture – A section of your tiles might be destroyed and you might want to change the undamaged tiles to match the new tiles. Most insurance companies don’t cover that.
- Scorching – loss or damage caused by scorching, such as an iron burning materials or cigarette burns on a carpet.
- A lack of maintenance – Insurance companies can refuse to cover your home if it is neglected and not properly maintained.
- Theft – if the building was vacant for more than 60 days or if it was done by any member of your family or lawful occupant.
Understanding an excess
An excess is the out of pocket amount of money that you should pay when making claims before your insurance can cover the rest. An excess is made to discourage people from making minor or small claims. The excess is usually a percentage or a set amount.
This means that you might need to pay out R10 000 out of pocket before your insurance covers the remainder, this is not worth it if the loss or damages amount to R12 000.
A building insurance basically covers the structure of your home and immovable objects around your yard like a Lapa. Do you have any thoughts or questions? Comment below.