Renovations can leave your property underinsured
The costs of buying a new home can stack up pretty quickly once bond fees, registration costs and moving vans are all taken into consideration. As a result, many people choose instead to renovate their existing property; however, few people realise the importance of informing their insurer of the work that they are doing to their property.
Craig Young, National Manager of Insurance Sales at ooba, South Africa's leading bond origination company, says the value of a home can increase significantly following extensive remodelling or renovation work. "When you are carrying out any serious work to your home it is vital to contact the insurer of your property to ensure that your coverage is still correct."
Young says homeowners get so involved in the detail around the renovations such as the planning, building workmanship and the finishing touches that they forget to consider the financial implications of making the necessary changes to their policies regarding the new insured value of the property.
"The greater the degree of work being carried out to a property the greater the risk of possible underinsurance. Anyone undertaking a home renovation project should therefore make sure that they have their property valued afterwards to determine whether their insurance policy is still adequate in the event of needing to make a claim."
He says it is important for consumers to remember that a property insurance policy should not be calculated on what someone paid to purchase their home but rather on what it would cost to rebuild the property to the same standard.
Young provides insight into some of the most important things for consumers considering renovating their home to look out for:
Make sure you tell your agent/broker about improvements to your home It is possible that your current policy will sufficiently cover any minor remodelling work being done, but it is safer to call your broker and tell them about any renovation plans you may have for your property. Once the renovations have been completed your broker will be able to do a full analysis and provide you with the correct cover to protect your home and newly acquired assets.
Appoint an external valuator Another option is to appoint an external valuator to provide a comprehensive sum insured replacement analysis on the property and its contents.
The risk of underinsurance If you buy a property for R1-million and you have extensive renovation work carried out, then the property may be worth R2-million. However, if you do not update your insurance policy with the new value then the property could be underinsured by 50%. As a result, the insurer will only pay out on half of any claim. The common term for this is "average".
A helpful hint for the future Get your property formally evaluated every couple of years by a qualified valuator or broker in order to avoid the insurer applying average to a claim due to underinsurance.