Real Estate Investor Magazine South Africa July 2015 | Page 34

FINANCE

Ensure Your Property Is

Correctly Insured

Get your property evaluated properly
BY CRAIG YOUNG AND GAVIN COMMINS

E

very property owner with a home loan must
have homeowners insurance in place. Your
insurer wants to keep your house in perfect
condition, so they should be the first person you call
when things go wrong.
However, misunderstandings are still encountered in
the property valuation process regarding the value of
insurance taken out on properties.
Insurance companies are frequently coming across
fundamental misunderstandings about the insurance
cover required. In particular, it is often not appreciated
that there are significant differences between the
replacement value of a property and its current market
value.

“Always keep your
property evaluation
up to date.”

It has been discovered that properties that had been
destroyed by fire and floods had been seriously undervalued. This has caused hardship to homeowners.
When a property is insured for its replacement cost,
it will be covered for all costs associated with replacing
it, including the cost of the building, the demolition
and site clearance, if required, the professional fees and
related escalations.
The value attached to these services may be different
to the price the property would have achieved if sold
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JULY 2015 SA Real Estate Investor

in the open market by a willing seller dealing with a
willing buyer. If the market is buoyant, the property
insured for its market value, may be valued far above its
re-placement cost. If, however, the market is struggling,
the price may be below the replacement cost.
Owners, therefore, need to decide on the type
of cover they want and whether they must call in a
professional valuer.
Validate your property annually
Always keep your property evaluation up to date.
The insurer will increase your premiums annually,
taking inflation and building material costs into
consideration, but it is up to you to request a reassessment of your property if you have carried out any
renovations. The main sum insured must be adjusted
on renewal annually to allow for changes in the value
of the property and the cost of rebuilding it. If you have
done any work on the property, call an expert evaluator
from your insurance right away. If you do not do this
and you need to claim, you can be under-insured. This
means you will be liable for the costs of a rateable share
of the damage.
For instance, if the replacement value of the property
is R100 000 and the insured value on the policy
schedule is R75 000, then the insurer will be within
its rights to only pay a maximum of 75% of every
claim you make. For this reason, you must ensure your
property is correctly insured.

RESOURCES
Ooba, The Valuator Group South Afr