Do you need building insurance as well as home contents insurance?

With so many insurance products on the market, consumers are drowned in insurance noise, which makes it difficult to establish exactly what every product covers and which products are required for certain kinds of cover, such as whether you need building insurance or home contents insurance.

When it comes to protecting your home, insurance is not an all-purpose approach. Whether you own a home or an apartment, understanding the difference between building insurance and home contents insurance is important to ensure protection for your property and possessions, Marius Kemp, head of personal underwriting at Santam, says.

“While building insurance covers the actual structure of your home, the valuables in your home are protected by home contents insurance. However, the line between the two can be blurred, leaving many homeowners uncertain about their cover.”

Kemp says a simple way to differentiate between the two is to think of the role of an owner of a rental property and the role of the tenant. “Tenants own all the furniture inside the house, including fixtures and fittings that belong to them, while the owner (landlord) owns the actual building structure and structures on the premises, such as swimming pools, paving and boundary walls, except for the fixtures that belong to the tenant.”

ALSO READ: More storms mean more insurance claims, but they’re not always paid out – here’s why

Who needs building insurance and home contents insurance?

It is, therefore, the responsibility of tenants to insure their home contents and the responsibility of the landlord to insure the actual structure. “Everything inside a house that you can take with you when you move is known as its contents, while the building and all other structures fall under building insurance.

“If you were to turn your house upside down, everything that falls out should usually be covered by home contents insurance.”

He warns consumers that they must be aware that building insurance does not include home contents insurance in South Africa. “Therefore, if you rent, always get your own home contents insurance.”

What kind of protection does building insurance provide, then? Kemp says building insurance is essential to protect a homeowner against a total loss in the case of a fire, earthquake, severe weather or other disasters.

“Repairing a broken geyser or damaged floor may be straightforward, but if your home is destroyed by a fire, building insurance caters to things like demolition and debris removal to take care of your security and safety.”

ALSO READ: This is how to boost your chances of a successful short-term insurance claim

What should building insurance cover?

Kemp says your cover should also take into consideration an increase in building costs over the years and therefore you must know the market value and the true replacement value of your home.

“Market value is influenced by location. A bungalow in Camps Bay, for example, might not cost that much to physically rebuild but its prime position makes it expensive in market value. If you make structural changes to your home, it is worthwhile chatting to your insurer to see if this affects your replacement value.”

Kemp emphasises that this includes installations such as solar panels.

Santam claims statistics show that one out of three homes in South Africa are underinsured by as much as 30%. “If you are underinsured, the sum insured is less than the cost of rebuilding, repairing or replacing your buildings and structures. For example, if your home is insured for R600 000 but the cost of rebuilding it is R1 200 000, you are underinsured by 50%.

“That means you must make up the remaining R600 000 yourself. In the event of a partial loss where the repair cost amounts to R200 000, the effect of underinsurance will be that you will only be compensated for 50% of the repair cost.”

ALSO READ: How to protect yourself when buying insurance

What does home contents insurance cover?

What does home contents insurance cover? Your possessions make your house a home. Kemp said that whether it is a fridge, furniture, or laptop, it needs to be protected as much as the building it is housed in.

“These items will be covered under your home contents insurance against the insured perils, while personal items you carry with you, such as your handbag, clothing and sporting equipment, are typically covered under ‘all-risks’. However, tablets, cell phones, jewellery, laptops and bicycles must be specified in your policy.”

Kemp notes that many consumers only evaluate their home contents when they take out insurance for the first time but forget to update the value over the years. If you need to claim, your household insurance will pay out on a pro-rata basis through applying the principle of average, resulting in you receiving less money than what it costs to replace your goods, he warns.

“For instance, consider a scenario where the contents of your two-bedroom apartment are insured for R200 000. After a break-in, you file a claim for R100 000 and discover the replacement value of all your home contents (the value at risk) is R300 000.

“In this case, your settlement will be calculated as R200 000 (insured value) divided by R300 000 (replacement value) multiplied by R100 000 (claim amount), which means your home contents insurance will only pay out R66 666, leaving you with a shortfall of R33 333.”

Kemp says understanding the difference between building and home contents insurance is critical for safeguarding your property and possessions. “Whether you are a homeowner, landlord, or tenant, having the right insurance in place can prevent financial strain in the event of a loss.”