Insurance issues around home purchases 'vexed and unclear'
The debate over the National Credit Bill has brought into focus the confusing issues around home insurance which often leaves homebuyers overpaying for insurance - or even paying for products they don't need.
Rhys Dyer, Insurance Director at MortgageSA, South Africa's leading home loan originator says, "The National Credit Bill has brought to the fore the likely changes to the sourcing of compulsory homeowners insurance - insurance that covers the bricks and mortar of the property. And, although there is no law making homeowners insurance compulsory, most banks make it a condition of the loan to secure themselves."
"However when the new National Credit Bill is enacted - within the next few months - homeowners will be quite within their rights not to accept the bank imposed insurance and to rather seek a cheaper rate elsewhere possibly saving them up to 30%."
Dyer says life insurance associated with homeloans is another issue that buyers find confusing.
"Certain bank homeloan products have life insurance covers automatically included and banks often make the granting of a homeloan conditional upon the buyer signing a life insurance policy. While banks can insist that a client take out life cover in order to obtain a bond, they can't insist that you use their products - you have free choice as to the product, intermediary or insurer you wish to use to provide the cover required by the bank."
"Buyers should therefore be aware of their rights to free choice when it comes to taking out a homeloan, where the banks require conditional insurance cover. Even if you have an existing bank policy, you should be encouraged to discuss your cover with your broker to ensure that it is the most appropriate cover for you. Pure life cover products have changed significantly over the past few years, and you may find that more appropriate products are now available to provide cover for your bond.
Dyer advises that it is a good idea to prepare for the possibility of being unable to pay off a homeloan due to death or incapacity, but urges buyers to consider all their long term insurance options.
"While individual life cover is a good option, many buyers could cover their homeloan risk as effectively with a Mortgage Protection Policy (MPP). Life insurance covers the risks of general income loss; whereas MPP covers the specific risk associated with homeloan debt and is matched only to that particular liability.
"An MPP policy can be as competitive and has the benefit of no medicals being required to obtain the cover. MPP policies also offer alternative covers, not normally offered in the traditional life insurance market, such as retrenchment cover, which will pay your bond installments in the event of you being retrenched from your job.
Another insurance issue that is often overlooked is when a buyer takes occupation of a house before transfer has gone through.
"A buyer should realise that the seller is still liable (as legal owner) for any damage to the bricks and mortar of that property although not for the household contents of the new purchaser.
"It's only when transfer goes through that the risk of loss or damage to the building passes on to the new owner."
As regards your household contents and motor vehicles, Dyer stresses the importance of advising your short term insurer that you are moving, to ensure that you are fully covered in your new home.
"Insurers will have to review the premium under your policy to reflect the new area in which you live, the security arrangements in your new home (burglar alarms, bars, fences etc) and whether your car will be parked in a lock up garage or out on the road.
"If your household contents and motor policy are not amended to reflect your new circumstances, there is a real likelihood that claims will be declined."
Finally, Dyer warns that if one needs to insure their home contents while being moved in a removal truck, they shouldn't automatically take up the policy offered by their furniture removal company.
"Many household contents policies already contain a level of transit cover. This may be a benefit you are already paying for in your existing household contents policy."