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Homeowners' Insurance
Monday, September 14, 2015 - 02:16
Defects protection

House purchases are typically funded by a mix of savings (used as a deposit or down payment) and a home loan, financed by a bank. Local banks apply tough lending criteria and it is common for first time buyers to have to ‘find’ between 10% and 20% of the house price as a deposit on the transaction. This means Joe Citizen will have to save up to as much as R200 000 in order to afford the deposit on a R1 million home.
So the last thing an already-stretched homebuyer can afford is to be lumbered with huge bills to repair an unforeseen defect in the property they have just purchased. “Very few home buyers have the financial means to pay thousands of rands for repairs immediately following the purchase of their home. An unexpected defect can turn their dream home into a nightmare,” says Lee-Ann Dobrescu, Group Business Development Manager at Hollard; “which is why Hollard has introduced an insurance product that will pay for the repair of faults or defects in a newly purchased home, which were not evident at the time of purchase.”
Called ‘Hollard Home Warranty’ the policy offers protection against a list of defects that may be discovered during the first two years over taking ownership,” she says. The product covers faulty or defective design, structure or workmanship for a number of the key areas of the home, including the roof, walls, foundations, tiling and paving. Faulty electrical, drainage, plumbing and irrigation systems, as well as water waste management issues, will also be covered.
Explains Simon Griffiths, co-creator of the product, “This is a product that was designed with the home buyer’s financial stress in mind.”
An important point is that the policy is bought by the seller, not the buyer. This is an interesting take on ‘insurable interest’ principal, because the normal legal basis is that a person who is not subject to direct financial loss from an event — that is, in this case, the seller, because the new owner of the property has the cost of repairs on his hands) does not have an insurable interest.
Griffiths says the seller can include the cover as a feature in the sale, or the buyer may insist upon the Warranty as a condition of the sale. In both cases, payment for the Warranty forms part of the offer to purchase. A premium is determined based on the actual selling price of the home and then deducted from the selling price and paid over to the insurer in the event of a successful sale, in much the same way as estate agency commissions and other costs are settled.
The home warranty cover does not act as a replacement for conventional homeowners’ insurance: it is rather intended to cover the gap between the sudden and unforeseen events covered by traditional insurance and the uninsured costs of day-to-day maintenance required on a home.  It is also a product intended to add value to sellers by making their home stand out from the rest through offering a buyer complete peace of mind. This should increase the interest in the home and support a faster sale. Sellers are also protected from the often-overlooked exposure to the risk of defects surfacing in the home, even after transfer of the property. Sellers are liable for costs of repairing such defects, if it can be shown that they could and should reasonably have known about the problem.
Before agreeing to provide the warranty, Hollard requires various inspections be performed. Where there are minor defects that would not cause Hollard to decline to provide the warranty, the seller can either opt to repair these or have them fully disclosed and listed as excluded from cover on the warranty certificate issued. “Our research shows that buyers would rather know what they are getting themselves into than have unpleasant surprises later. Most people expect a house to have some problems,” emphasises Griffiths. “Through the warranty there is full disclosure and protection from the unknown.” The warranty certificate issued indicates that the cover will be in place once the sales transaction is completed.
In line with current regulations that govern the provision of financial advice, estate agents will introduce the product, and be requested to refer any questions about the product to Hollard. “Premiums are determined on an individual basis, but sellers can typically expect to pay around R12 000 for a warranty on a R1 million home, R17 400 for a R2 million home and R27 500 for a R5 million home” he says.
Adds Dobrescu, “Ultimately the Home Warranty makes the property buying process fairer and more transparent for both buyer and seller – it is a product that every seller of a well looked after home should attach to their ‘for sale’ sign.”

Copyright © Insurance Times and Investments® Vol:28.9 1st September, 2015
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