Deshni Subbiah, chair of the Short-term Insurance Committee of the Actuarial Society of South Africa (ASSA) explains that homeowners may have building cover without even realising it.

If you are repaying a home loan but didn’t take out comprehensive building cover when you bought the property, you should check with your bank whether your home is indeed insured.

Taking out comprehensive building cover is usually a prerequisite when taking out a mortgage bond. This is because the property belongs to the bank until you have repaid your loan in full.

This could bring unexpected relief to homeowners who suffered extensive damage to their properties during the floods in KwaZulu-Natal and the Eastern Cape, but who think they aren’t insured.

While you are not obliged to buy building cover from the bank’s preferred short-term insurer, people often don’t shop around for insurance. In the excitement of buying a home, most people just sign up for the default building cover when finalising the mortgage bond agreement.

Since the monthly premiums are often deducted together with the bond repayments, people quickly forget that they have this cover. This is often the case where people bought a property many years ago, forgot that they bought cover through the bank, and simply never considered taking out additional cover because their budgets were already stretched by the mortgage repayments.

As a result there is a real chance that there are homeowners who lost their homes in the recent floods and now believe that they have been left destitute, because they cannot remember taking out comprehensive building cover.

If you suffered damage to your home during the recent floods but never took out separate insurance cover on their property, and you are still repaying a mortgage bond, you should make contact with your bank’s home loan department.

Your bank will know whether you are paying a monthly insurance premium in addition to your home loan repayment, and they should guide you through the process of submitting a claim.

The true value of insurance, whether long term or short term, is often only realised after a loss is suffered. For this reason all homeowners should meet with a trusted insurance broker at least once a year to do a needs analysis.

Take out building cover once your home is paid off

Unless you’ve already insured your home independently, once you have fully paid off your home loan, your short-term insurance cover may also fall away. Make sure that you take out new comprehensive building cover with a short-term insurer of your choice.

Always insure your home for the right value. There is no point in trying to save money by insuring your home for less than it will cost to replace.

Also remember that comprehensive building cover and household content cover are not the same. You will need to take out both if you also want the contents of your home covered against events like theft, fire and floods. Your bank is only concerned about making sure that the actual building is insured. If you want the contents insured as well you have to request that cover, which comes at an additional premium, or take it out separately.

If you prefer using your own short-term insurer for insurance that covers your property, the contents as well as your vehicles, you will have to provide your bank with proof that you have insured the property against all risks.

Cancelling that insurance cover at a later stage without replacing it will put you at risk financially and could be in breach of your mortgage agreement. Should something happen to your home and it is not insured, you will be left without a home and owing the bank the balance of the outstanding loan.

This post was based on a press release issued on behalf of the Actuarial Society of South Africa.