Craig Young, National Manager of Insurance Sales at ooba, South Africa's leading bond origination company, says the value of a home can increase significantly following extensive remodeling or renovation work. "When you are carrying out any serious work to your home it is vital to contact the insurer of your property to ensure that your coverage is still correct."

Young says homeowners get so involved in the detail around the renovations such as the planning, building workmanship and the finishing touches that they forget to consider the financial implications of making the necessary changes to their policies regarding the new insured value of the property.

"The greater the degree of work being carried out to a property the greater the risk of possible underinsurance. Anyone undertaking a home renovation project should therefore make sure that they have their property valued afterwards to determine whether their insurance policy is still adequate in the event of needing to make a claim."

He says it is important for consumers to remember that a property insurance policy should not be calculated on what someone paid to purchase their home but rather on what it would cost to rebuild the property to the same standard.

Young provides insight into some of the most important things for consumers considering renovating their home to look out for:

Make sure you tell your agent/broker about improvements to your home It is possible that your current policy will sufficiently cover any minor remodeling work being done, but it is safer to call your broker and tell them about any renovation plans you may have for your property. Once the renovations have been completed your broker will be able to do a full analysis and provide you with the correct cover to protect your home and newly acquired assets.

Appoint an external valuator Another option is to appoint an external valuator to provide a comprehensive sum insured replacement analysis on the property and its contents.

The risk of underinsurance If you buy a property for R1-million and you have extensive renovation work carried out, then the property may be worth R2-million. However, if you do not update your insurance policy with the new value then the property could be underinsured by 50%. As a result, the insurer will only pay out on half of any claim. The common term for this is "average".

A helpful hint for the future Get your property formally evaluated every couple of years by a qualified valuator or broker in order to avoid the insurer applying average to a claim due to underinsurance.

Declining house prices and rapidly increasing building costs are creating a very real gap between the market value of properties and their replacement costs. Property owners need to reevaluate their buildings insurance to guarantee that they are sufficiently covered in the event of a disaster.

"Property owners need to ensure that the sum insured (replacement value) on the property is increased proportionately with current building prices," warns Craig Deats, Insurance Managing Executive at ooba. "If they are under-insured at the time of claiming, they will find that the insurer will not settle the entire claim."

While the property market has devalued in the last few months building costs, the cost of building materials and the cost of labour, have been climbing steadily. Key contributors to rising building costs are steel, cement, copper and the impact of rising oil prices.

Statistics from the Bureau for Economic Research Building Cost Index show an average building increase of 15% for 2007 with the last quarter 2007 at 16.5% and the first quarter of 2008 at 21.9%.

"There is a sharp increase in building costs mainly due to a low base rate increase in Q1 2007 and rises in input costs of builders," says Deats.

"For buildings insurance, you need enough cover to rebuild your home and replace all the fixtures and fittings within the home from scratch and the BI policy provides cover on a 'new for old' basis" says Deats.

Buildings insurance is a requirement if the property is bonded and protects the actual building structure and all the permanent fixtures and fittings, garages, swimming pool, paving and walls in the event of fire, floods, lightning and other unforeseen causes.

"The cost of building materials and the cost of building labour changes on an ongoing basis so it is necessary to reevaluate your building insurance on an annual basis to ensure that, in the event of a disaster, the full value of replacing your property is covered," notes Deats.

For an accurate replacement cost of the buildings, property owners should be requesting a replacement cost valuation from a certified valuations company. The property owner¿s insurer should be able to recommend one.

A client can speak to their Property Finance Consultant when applying for a bond and they will be able to assist them with all their building insurance needs.

"It is critical for home owners to take a look and reevaluate their buildings insurance today as there may be a significant difference between the actual replacement cost of the building and the market value of your property," concludes Deats.