Renovating your house? Beware underinsurance

The costs of buying a new home can stack up pretty quickly once bond fees, registration costs and moving vans are taken into consideration. But if you decide to renovate the property you have, rather than buy a new one, be sure to tell your insurer, because your home’s value will increase if you remodel and renovate quite extensively.

“Make sure your coverage is still correct,” says Craig Young, national manager of insurance sales at bond originator ooba.

You might get so caught up in planning, building workmanship and finishing touches that you forget about the financial implications and possible new insured value of the property. As such, you might be underinsured.

A property insurance policy shouldn’t be calculated on what you paid to purchase a house but on what it would cost to build the property to the same standard.

Young came up with a few tips to bear in mind:

  • Tell your agent or broker about improvements to your home.It’s possible that your policy will cover minor remodelling, but it’s safer to call your broker and tell him or her about renovation plans. When the renovation’s complete, your broker can do a full analysis and let you know what the correct cover is.
  • Appoint an external valuator.By doing this, you can get a comprehensive sum insured replacement analysis on the property and its contents.
  • Beware underinsurance.If you buy a property for R1-million and you have a lot of renovation work done, the property could be worth R2-million. But if you don’t update your insurance policy with the new value it could be underinsured by as much as 50%. The insurer would then pay out on only half of any claim. (The common term for this is “average”.)
  • Be proactive.Have your property formally evaluated every couple of years by a qualified valuator or broker, to avoid your insurer applying “average” to a claim due to underinsurance.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information

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