What is household Insurance
Household insurance relates to the contents of the house, the movable possessions like furniture, appliances, linen, clothing, electrical equipment and jewellery. It provides one with coverage for any unforeseen circumstances like a burglary or a flash flood. The specific losses that are covered by the insurance policy are defined in the agreement or the policy that one takes out. It will differ from insurer to insurer and policy to policy.
Types of damage or loss that can be insured against include:
Fire damage due to electrical shorts, lightning strikes or explosions
Water damage from storms, hail snow, natural disasters or burst pipes or geysers
Burglary or theft
Impact by animals, vehicles, falling trees or parts thereof, aircraft or articles dropped from above
The Difference between Household versus Home / Building / Homeowners Insurance
As mentioned above, household insurance covers the contents of one's[G2] house. A good analogy is to say that if one has to literally flip one's house upside down and shake it out, all that falls out will be covered by household insurance. Home insurance covers the actual building, its structure and permanent fixtures. It covers the home as an immovable asset. The actual walls, bricks, cement, tiles, roofs and windows are covered by many of the above-mentioned damage.
It is important to distinguish carefully between the two as the products and policy names can be misleading. The two policies are not mutually exclusive or include the other. You should always make sure what policy you are buying and whether it meets your needs. Some companies offer combined policies that can be financially beneficial. But ultimately, your needs should to be met.
To illustrate the difference:
· Baddy McRobber decides to burgle Ms Innocent's house.
· He smashes a window to enter the house and steals her television.
· The window is too small to remove the television, so he kicks down the front door to leave through there.
· Now that the front door is open, Baddy decides to take the bar fridge too as he can get it out of the house.
Whilst the burglary affected the actual house and its contents, the window and the damage to the door will be covered by home insurance and the television and fridge are covered by household insurance.
Basic types of Household Insurance
Each insurance company has its own policies that have certain benefits and features, all dependent on the scope of the coverage and the price.
Comprehensive Household Cover
A comprehensive household cover is the most extensive type that covers almost everything (dependent on the policy and the insurance company), from theft, smoke and fire damage to the breakage of mirrors and even compensation for the loss of fridge contents. This should have annual inflation-linked adjustments to your cover to ensure that one never underinsured.
A basic household insurance cover should cover against theft, intentional damage, damage from a burst geyser or damage to goods due to the elements (fire, lightning, fail or flood). Some packages include personal liability cover in case one’s domestic worker gets injured on duty. However, this is all dependant on the companies you approach.
Some companies will allow you to customise your policy to exclude burglary or theft coverage for example. Other companies allow you to add coverage for unoccupied buildings, garden and leisure equipment when one's goods are stolen whilst moving houses and accidental coverage. All of this is dependent on the insurance company to which you go.
What type of Insurance is best for me
This depends on your financial position, the area that you live in and to what extent you want your items to be protected. Before insuring, you should make a list all your belongings and work out how much it will cost to have it all replaced.
Some companies have a household calculator that will assist you in determining the value of the contents and whether you will be sufficiently covered. It is also important to always revalue your goods at least yearly to prevent being underinsured.
It is important to consider that should one not take a comprehensive cover, one may not get out enough to cover the replacement costs for the damaged or stolen items. Unforeseen and unplanned expenses may arise that one will have to pay from one’s own back pocket. Thus, sometimes a lower premium or less comprehensive package could be detrimental as it could leave you financially crippled.
Generally, a comprehensive cover is a wise choice.
This is a rather common phenomenon in South Africa, where almost 30% of households are underinsured. This happens when your coverage is not enough to cover the replacement value of the goods lost. This means that you will not get the full value back from the insurance company and will have to incur additional expenses.
This can be avoided by making sure you take out enough coverage to replace the goods on the day one takes out the insurance. Further, frequent evaluation of the policy can prevent this. Lastly, one must also adjust your policy on the acquisition of new items to ensure that all is covered and that all items will be replaced.
Excess is a fixed amount that you have to pay if you make a claim on your insurance. It is usually the first amount one has to pay and is the uninsured part of your loss. This amount can be deducted from the total amount payable and this will not be paid out to you in the end. Some policies will have no excess payments required, but these will usually be in cases where one takes out a comprehensive or executive cover package.
Factors that determine household insurance payment
The level of risk one poses to the insurer will determine the premium one will pay. The main three factors that will influence the premiums attached to the cover is:
The type of policy one uses: this is dependent on the insurance companies as each will have products that cover various items at various costs.
What one is ensuring – how many items.
The value of the items that one is ensuring – some high-value items may boost the premiums and some companies also put a cap on the value of items.
Various other factors include
The area in which one lives – higher risk areas should pay a higher premium
The security measures at the residence – armed response and electric fences could play a role in the premium amount
The construction of the actual building
The weather of the area in which one lives
One's claims history - the less you claim, the lower one's premium
Inflation – some package automatically adjusts the value of the items covered according to inflation, which could thus influence the insurance price
The amount of the premium is subject to change, depending on the policy and the insurance company the policy is taken out at. Some may offer a fixed amount for a fixed period. Others may boost the premium as the value of the insured goods rise.
Is household insurance really necessary?
It is no legal requirement in terms of any legislation, but it is something we highly recommend. What with all the flooding in Gauteng and the raging fires in Cape, this protection could prevent you from landing in a financially tight and undesirable position.
Further, although you may live in a safe neighbourhood or have the latest security measures up, anything can happen. Then, it is better to be safe than sorry and have insurance cover that is possible within your monthly budget and covers for unforeseen events.
What you need to get household insurance in South Africa
Many of the insurance companies have easy and user-friendly online application forms that gather information before a consultant makes contact with you or it spews out a quote. Certain things that they ask for are:
1. Knowing how much (the Rand value) one wants to cover
2. Where one resides
3. Whether one has any security measures in place (like an alarm that is connected to an armed response)
How can funds from an insurance payout be used?
Some companies pay out a lump sum, determined by the value of the goods it covers or the value on their record (hence the emphasis on constant evaluation and keeping the policy up to date with one's property). This is usually the case if the payout sum is less than what is needed to replace the item. Others may replace the actual item for you without any cash being transferred between the parties. This remains dependent on the company and the details of the policy one takes out.
It is important to note that some insurance policies set a cap on the value of valuable goods. This means that they will only pay out a percentage of the total insured amount for a single item.
Tips for choosing the best household insurance for you
Identify how much one wants to be covered. This is vital as it determines the amount of the premium one has to pay and also the amount of coverage one will get. It is important here to be accurate.
Determine whether there are any other benefits one would like to have. Many insurance companies have packages with additional benefits that sound very enticing but is not what one needs and merely pushes up the price
Obtain many quotes. Using websites online quote generators are very useful in this regard. Further, other websites like Hippo.com gathers quotes for you and sends your information to the respective companies for which you have expressed interest in. But do not be scared to inquire into products from companies that are smaller and less known – it has no direct influence on the quality and product one can get.
Know what you get. So not jump into a policy and a product without first ensuring what exactly one is binding oneself to and the extent of the coverage. Also, read all the small print to avoid any unexpected surprises and costs when one needs to make use of the policy