Property value vs. Replacement value

Your building is almost certainly the most valuable possession you own. South Africa is prone to extreme weather, natural disasters and flooding. Whilst very little can be done to stop such events from happening, it is important to get buildings insurance to protect your home. Buildings insurance provides a financial shield if there is any damage to the structure of your property.

If your property can be restored, and the cost of repairing the structural damage will be insured. This includes any permanent fixtures such as fitted kitchens and bathrooms, as well as geysers, solar panels. Outbuildings, like cottages and garages, are also included, as are swimming pools and tennis courts.

The owner determines the insured amount of the property

However, if the property at any time of loss or damage is not insured for the full replacement value, the average clause will be applied. The insurer will only compensate the client for a percentage of insured amount.

For this reason, the insured amount must be sufficient to reconstruct the building.

A frequently asked question is: I cannot sell my house for the insured amount stated on the insurance policy:

•     Market value is determined by the MARKET VALUE of the property. This value is determined by the location as well as demand and supply. Features like appearance and condition in itself also play an important role.

•     Replacement value is determined by the total cost of reconstruction including:

demolition fees, professional fees demolition fees, and the estimated building costs

The replacement costs are very different from the market value the seller can expect to get for their property in a sale. The property must be insured for the value to reconstruct since the insurer must REPLACE the property should a complete or partial loss arise.

Very important

National Building Regulations and Local Authority Legislation requires for any building owner to be responsible to comply with the requirements of the applicable Acts and Regulations.

This information is available on the following Web pages

www.sans10400.co.za

www.nrcs.org.za

It is therefore prudent of any building owner to take steps to ensure that their tenants are made aware of their obligations in this regard.

WHAT IS NOT INSURED

•     Wear and tear and any maintenance related claim will not be covered under any insurance policy. Insurance only covers an INSTANT loss caused by one of the following: Storm, wind, hail, lightning, water (for instance in the case of a burst geyser or a burst pipe), power surge and impact. If the damage was caused over a period of time (like rust or a leaking pipe) the damage will not be repaired by the insurer. An insurance policy is NOT a maintenance plan.

•     Defective workmanship is excluded.

•     If the property does not comply to regulations, the claim will not be entertained. This includes extensions and boundary walls.

•     Home contents will not be covered under building insurance. This cover is available under house contents insurance.

DOES BUILDING INSURANCE COVER LOSS OF INCOME?

If there is damage to the property due to an insured peril as mentioned, and the existing tenant has to move out due to the damage to the building, the buildings insurance policy will also cover lost rental income.

DOES BUILDING INSURANCE COVER WATER LEAKS?

Water leaks are not covered. However, a burst pipe would be insured. Water damage is often covered by buildings insurance policies. Water damage can be caused by burst geysers or pipes, broken household equipment such as washing machines or fridges, or damage caused by storms and flooding.

DOES BUILDING INSURANCE COVER CRACKED WALLS?

Hairline cracks are caused by the plaster moving away from the wall. These types of cracks are usually not covered by buildings insurance.

Repairs to cracks caused by water damage and subsidence are covered by your building insurance policy.

DOES BUILDING INSRANCE COVER WINDOWS?

Buildings insurance covers fixtures and fittings such as walls, doors, roofs, and windows. But this protection is offered for damage that happens suddenly or accidentally, such as from a storm, a break-in, or an unexpected mistake. Buildings insurance will not cover broken fixtures if caused by wear and tear, such as rotting window seals. This kind of damage is part of general maintenance and is seen as a homeowner's responsibility.

DOES BUILDING INSURANCE COVER BOUDARY WALLS?

If an accident occurs, such as a vehicle driving into your property, damage to boundary walls is covered by buildings insurance. Again, the structure must comply to building regulations.

If the wall is damaged, thereby causing a security risk, building insurance will even cover the cost of posting guards outside the property. The limit is sated on the policy schedule.

DOES BUILDING INSURANCE COVER SUBSIDENCE AND LANDSLIDE?

Subsidence is the gradual sinking in of land and it can cause damage to the structure of a property. While most insurance companies will cover the cost of repairing the damage caused by subsidence issues, buildings insurance might not cover the cost of stopping the subsidence from happening again – this will be up to the homeowners to remedy.

DOES BUILDING INSURANCE COEVER THFT OF FIXTURES AND FITTING?

Theft is also a growing issue. Building insurance will cover damage caused by theft and break-ins.

Building insurance can be tailormade to meet the client's needs. I Manage Risk offers various products available in the insurance market to cater for your specific requirements.