Are You Adequately Covered For Fire Damage?

[Feb 2017]: Have you ever really thought about what would happen if you lost your home and all your possessions in a fire? If you live in a fire prone area, you may have an inkling of the anxiety and strain hoping that it doesn’t reach your home.

Right now, fire fighters in the Western Cape continue to battle frequent wild fires. The mother city's Fire and Rescue Service has responded to thousands of fires in the last few months fuelled by strong winds and high temperatures.  

“Many people believe that the threat of a catastrophic event such as a fire or flood is far-fetched, and as a result neglect to properly insure their property and possessions for worst case scenarios.  It’s evident in the fact that people rarely update their policies as they add new assets, or relook their property replacement values and sums insured over the years.  It’s one of the reasons why an annual review of your portfolio of assets with the guidance of your insurance broker is such an important exercise in wealth preservation,” says Mandy Barrett of insurance brokerage and risk advisors, Aon South Africa. 

Consider these important questions;

• Do you have sufficient cover to rebuild your home at today’s prices, or buy one of equal quality if you lost everything in a fire?
• Are you covered for the cost of demolition, site clearing and architect’s plans if your home was burnt to the ground?

“Asking these questions makes most people uncomfortable as the reality is that most of us don’t actually know in any real detail what the real cost of replacing our homes will be.

You owe it to yourself and your family to know the answers to these questions,” says Mandy.

If you are under-insured, you may find yourself in a situation where you are only paid partially for a loss at claims stage.  “Insurers call it the ‘average formula’ which means that if your property is under-insured by 50% for example, they may only pay you 50% of your claim.  This easily happens where a home was bought a number of years ago.  Many insure the structure of their home for the value that they purchased the property for years ago, or the current market value of the house.  But as building costs escalate, the actual replacement cost – not the market value – could have appreciated to well beyond your insurance cover,” Mandy explains.

Savvy homeowners insure on the replacement value of the structure and its contents, Mandy adds.  “The replacement value covers a ‘new-for-old’ approach, which is why it is essential that the sum insured is adequate to cover the cost of rebuilding the same building at today’s prices, including associated costs such as municipal and professional fees in addition to debris removal.”

The services of a professional broker could well prove to be invaluable in evaluating your exposure to a catastrophic event, such as a fire.  “A professional broker will be able to facilitate the making of a well-managed insurance programme that accounts for your unique needs and risk profile, while matching your available budget.  Your broker will also be able to confirm exactly what you are covered for and whether any exclusions or special conditions exist on your policy.  A broker can ensure that you are in good hands in the event of a catastrophe and that there are no surprises waiting for you when you claim.  Most importantly of all, a well-conceived insurance plan and guidance of a professional broker is as much about preserving and protecting the wealth you have acquired over the years, as it is about managing and mitigating risks,” concludes Mandy.