Building insurance vs home contents insurance: Where does your cover stop?

When it comes to protecting your home, insurance is not an all-purpose approach. Whether you own a home or an apartment, understanding the difference between building and home contents insurance is imperative to protect your property and possessions. While building insurance covers the actual structure of your home, the valuables of your home are protected by home contents insurance. However, the line between the two can be blurred, leaving many homeowners uncertain about their cover.

Marius Kemp, Head of Personal Underwriting at Santam says a simple way to differentiate between the two is to think of the role of an owner of a rental property and the role of the tenant. “A tenant owns all the furniture inside the house including fixtures and fittings that belong to them, whereas the owner (landlord) owns the actual building structure and structures on the premises such as swimming pools, paving, boundary walls, etc. except for the fixtures that belong to the tenant”.

The difference between home contents and building insurance

It is therefore the responsibility of the tenant to insure their home contents, and the responsibility of the landlord is to insure the actual structure. “Everything inside a house that you can take with you when you move is known as its contents, and the building and all other structures listed above - fall under building insurance”, explains Kemp.  “If you were to turn your house upside down, everything that falls out should usually be covered by home contents insurance”.

Kemp advises consumers to be aware that building insurance doesn’t include home contents insurance in South Africa. So, if you are renting, always get your own home contents insurance.

Protection provided by building insurance

Building insurance is essential to protect a homeowner against a total loss, in the case of a fire, earthquake, severe weather or other disasters. Repairing a broken geyser or damaged floor may be straightforward, however, if your home is destroyed by a fire, building insurance caters for things like demolition and debris removal – taking care of your security and safety.

Your cover should also take into consideration an increase in building costs over the years. Kemp says consumers need to know the market value and the true replacement value of their home. Market value is influenced by location - e.g. a bungalow in Camps Bay might not cost that much to physically rebuild but its prime position makes it expensive in market value. Additionally, if you make changes to your home structurally, it is worthwhile chatting to your insurer to see if this affects your replacement value. This includes installations like solar panels. Santam claims statistics show that one out of three homes in South Africa are underinsured by as much as 30%. “If you are underinsured, the sum insured is less than the cost of rebuilding, repairing or replacing your buildings and structures,” He says. For example, if your home is insured for R600 000 but the cost of rebuilding it is R1 200 000, you are underinsured by 50%. That means that you will have to make up the remaining R600 000 yourself. In the event of a partial loss where the repair cost amounts to R200 000, the effect of underinsurance will be that you will only be compensated for 50% of the repair cost.

Your cover with home contents insurance

Your possessions make your house a home – whether it’s a fridge, furniture, or laptop, they need to be protected as much as the building they are housed in states Kemp. These items will be covered under the home contents insurance against the insured perils. “Personal items you carry with you such as your handbag, clothing and sporting equipment, are typically covered under ‘all-risks’. However, tablets, cell phones, jewelry, laptops and bicycles need to be specified in your policy”, he says.

Home contents insurance valuations

Many people only evaluate their home contents when they take out insurance but forget to update the value over the years. Should you need to claim, your household insurance will pay out on a pro-rata basis through the application of the principle of average, resulting in receiving less money than what it costs to replace your goods.

For instance, consider a scenario where the contents of your two-bedroom apartment are insured for R200,000. Following a sudden break-in, you file a claim for R100,000 and discover the replacement value of all your content (the value at risk) is R300,000. In this case, your settlement will be calculated as follows: R200,000 (insured value) divided by R300,000 (replacement value) multiplied by R100,000 (claim amount) = R66,666. This leaves you with a shortfall of R33,333.

Understanding the difference between building and home contents insurance is critical for safeguarding your property and possessions. “Whether you're a homeowner, landlord, or tenant, having the right insurance in place can prevent financial strain in the event of a loss,” concludes Kemp.