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"Property is perhaps one of the most difficult assets to determine a replacement value for, because a rebuild is dependent on so many varying factors,” she says.HARD TRUTH: If a claim is received on a property that is underinsured (determined by the assessor), an “average clause" will be applied in order to protect the insurance company from underinsurance. This, essentially, means you, as the homeowner, share the liability of the extent of the underinsurance. The "average clause" principle is used throughout the short-term insurance industry and is explained in the terms and conditions of every policy. If your home is underinsured by 35%, your insurer reduces the claim payout by the same percentage. And, you will have to make up the balance. If you are overinsured by a similar percentage, however, no similar calculation applies. You will not receive more than the claimed amount.
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“A Victorian house in Parktown, with its original features intact, could easily cost more to rebuild than a swanky new development in Sandton,” says Fourie.On the other hand, a cottage in Clifton might have a market value of R30 million. But, should you have to rebuild, for whatever reason, it will cost a fraction of that price tag. Why? Because market value is all about the area and location of the home.
"So, you could either find yourself unable to replace the house, in the original style, or you could pay inflated home insurance premiums for years without getting anything back," says Fourie.