Is household insurance different from buildings insurance?

Household insurance and buildings insurance are both important because they ensure that you are covered in the event of theft, fire, lightning, storm, wind, or explosion.  Here is why you should purchase both of them.

Your home is probably one of your most valuable investments, so why not make sure it is covered when unexpected and unfortunate events occur?

This week Moneyshop looks at the differences between two of the most important insurance policies in any home owner’s life: household insurance and buildings insurance.

Household insurance

Household insurance, which is also known as home contents insurance, covers the contents, possessions, and valuables in your structure or building. This includes everything from big appliances and clothing, to personal effects, furniture, and jewellery.

Home contents insurance doesn’t cover certain items that are regularly taken off the list of insured property, such as cellphones, bicycles, and high-value jewellery and watches – you need separate portable possessions cover for these.

By taking out home contents insurance, your possessions and valuables will be covered when you provide an address where you reside. This can be for an owned property, rented property, or a rented space in a building.

Bertus Visser, chief executive of distribution at PSG Insure, says the replacement value of your household contents is likely to change from year to year and should be updated in your policy.

Some items, such as electronics, may have decreased in value over time, whereas others, such as art or furniture, may have increased.

Visser says you need to think about the cost of replacing these items, not the amount you originally paid for them.

With most insurers, it’s your responsibility to make sure that the sum insured is enough to replace all the contents of your house as new at current prices, he says.

Your insurer may suggest a minimum insurance sum based on the details you provide but if the figure is not sufficient, you could have it increased.

Marius Steyn, personal underwriting manager at Santam, says that you must complete an inventory of the contents of the house by attaching the current replacement value to the items.

“Drawing up an inventory for your house contents will involve walking from room to room, listing belongings, and determining exactly how much it would cost to replace each item with a similar new item,” says Steyn.

Any new items need to be added to the policy throughout the year as well, including any valuable gifts received.

Buildings Insurance

Buildings insurance covers the actual building, such as boundary walls, swimming pools, and outbuildings.

According to Waynand van Vuuren, spokesperson for King Price, building insurance is a prerequisite if a property owner has a bond on a property.

“The bonding institution, normally a bank, needs to cover the property against loss or damage while it’s still being paid for,” he says.

As soon as a bond is paid up, a building owner can decide whether to keep insuring the building or not, he adds.

It’s important to insure your buildings for what it’ll cost to rebuild from the ground up and replace like with like, including making allowances for costs like architects and the removal of rubble. Otherwise, you’re underinsured.

Steyn suggests that you use a professional evaluator who can accurately determine the insured value of a home’s structure once it has been accessed.

If you’ve done any renovations or home improvements that have increased the value of your home, you’ll need to notify your insurer, he says.

He also urges you to keep in mind that mortgage bond insurance is not necessarily enough as it simply increases with inflation, whereas building costs increase at a rate that exceeds inflation.

Can you purchase both insurances at once?

Van Vuuren says you can have one without the other. However, if your home is bonded, your bank will insist that you have buildings insurance. You don’t have to accept the bank’s quote and you have every right to shop around for this cover.

He says your individual risk profile determines the premium for this type of insurance. Insurers consider aspects such as the residential area, what the buildings are constructed of, whether there’s thatch nearby, which security measures are in place, the values of the items being insured, and your credit history.

It is important that you read the terms and conditions of your policy and make sure you understand the extent to which your entire home is covered.