What you need to know about insuring your bond
Category Home tips
The largest single payment for thousands of South Africans is the monthly repayment on their home loan. A percentage of the repayment amount goes towards insurance that secures the financial institution’s investment, should anything unforeseen happen and the buyer is unable to meet the repayment obligations. Often though, the insurance aspect may prove confusing and daunting to the buyer. We look at what the different types are and what purpose each one serves.
Greeff Christie’s International Real Estate CEO, Mike Greeff, encourages buyers to exercise due diligence when insuring their bonds. “Your home may well be your most valuable asset and your insurance is what looks after that asset. Always look at getting professional advice and assistance in choosing your insurance when securing your home through a financial services institute.” The Financial Advisory and Intermediary Services (FAIS) Act requires that banks or lenders give clients a competitive choice when offering insurance cover. This means that you need not use the bank’s insurance provider and are free to choose a more affordable option provided that the cover amount is the same.
Mortgage Protection Insurance vs Home Owner’s Cover
There are two types of insurance policies relevant to property owners, the first is: Mortgage Protection Insurance which covers the homeowner in the event that they are unable to make repayments on the bond due to an unforeseen event like death, disability or retrenchment. This insurance will either cover the monthly repayment in the event of retrenchment or temporary disability. In the event of death or permanent disability, the insurance will settle the full amount that is outstanding. The other insurance type is Home Owner’s Cover or HOC which looks after the structural integrity of your home and usually covers fire, water damage and any other unexpected event that causes damage or destruction to the property.
Know your rights
As with any purchase it is important that you know the facts as well as your rights. Always read through the policy document in order to understand your rights as well as responsibilities. Familiarising yourself with your policy document will also educate you as to the exclusions and potential waiting periods that are included. Reading the ’fine print’ could save you from an unexpected surprise in the event of a claim that turns out to not be covered by the policy.
If you already have your own life insurance you may cede all or part of it to the bank as security for the loan. The ceded portion remains contracted to the bank for the duration of the contract term and when the debt amount is paid, the ceded portion of your insurance is released by the bank to again be part of your policy. This method allows you to choose an insurer of your own as well as get the best premium possible.
Shopping around is a prudent course of action. Your needs change over time and so should your insurance. A good example of this would be if you bought your home for R1 million and had it insured for that amount. Over the next five years you added renovations for another R500 000 but neglected to inform the insurance company. In the event of the house burning down you would only be paid for the initial R1 million and not the extra R500 000. Shopping around for comparative quotes every few years is a good way to keep your insurance amount current and adequate to compensate for any inflation-driven increases in building costs.
Having adequate insurance protecting your most valuable assets is one way to ensure piece of mind.