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Homeowners' Insurance
Tuesday, February 1, 2005
Cover note

Homeowner’s insurance is not being managed properly. On the one hand many clients are over insured and paying too much in premiums; while on the other, those who have paid off their bonds have let their insurance cover lapse unwittingly
Redeeming one’s mortgage bond after ten or twenty long years is a highlight in the life of every homeowner. It means more disposable cash, besides the delightful knowledge that one’s home is truly and completely one’s own after so many years. It is people over 50 in particular who fall into this privileged category.
Amid the excitement and delight brought about by a redeemed bond, many people, however, forget to continue with their homeowner’s insurance, according to MD of IntegriSure, Arnold van der Linde. He says it happens mostly when the insurance is arranged by the mortgagee at the time a home is purchased. “The premium is often conveniently added to the monthly bond installment. But when the bond is paid off, the installment lapses - and often so does the building insurance.”
Mr Van der Linde says usually the homeowner only realises this when something goes wrong. “It is a tremendous risk to own a home of which the building is uninsured. If the roof is blown off by a sudden gust, if torrential rain should cause a wall to collapse, lightning to trigger off a fire or an earthquake result in serious cracks, it could spell financial disaster for the owner without building insurance,” he warns.
Another problem is that most people who qualify for lifestyle discounts often pay too much unnecessarily for homeowner’s insurance because it forms part and parcel of their mortgage package and they keep on paying after the bond is redeemed.
Perhaps it would be more beneficial to have one’s insurance arranged through a short-term insurance broker. At the very least he should be able to advise his client on the correct cover required and, furthermore ensure annual reviews to update the indemnity cover needed. This is particularly so in view of the unusual rise in house prices which, according to a recent survey by ABSA, rose 15% in real terms to the year to 30th September 2003. Many banks, through their absorption of the old building societies, are permitted to provide homeowner’s insurance as a condition of their loan, provided the rate charged is ‘reasonable’. By and large this requirement is being adhered to. But when the bond is repaid often this relationship falls away. Brokers need to be aware of their client’s position as bondholder and monitor events such as settlement of debts so appropriate advice can be given.

Copyright © Insurance Times and Investments® Vol:18.1 1st February, 2005
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