Insuring sectional title versus freehold properties – what you need to know

Johannesburg, 22 November – Whether you own a sectional title property inside a residential housing complex, or whether your home is a free standing house in a suburb is usually an indication of whether you prefer a lock-up-and-go lifestyle or a more traditional, suburban life. However, your choice between sectional title or freehold property also has direct implications for your insurance needs.

If you reside in a sectional title unit the body corporate of your residential housing complex is required by law to take out insurance for the physical structure of your home. The monthly premium for this usually forms part of the monthly levy that you pay the body corporate. One thing to be aware of with sectional title units is that if you have done alterations to the structure of the unit, and it no longer looks exactly like the other units in the complex, you need to let the body corporate know so they can inform the insurer.

“Some sectional title units allow the individuals to make structural changes to their units, with the result being that not all units within the complex will look exactly alike,” says Louis Hay, Head of Short-Term Insurance Propositions at Standard Insurance Limited. “The problem is that this is not usually the case so if the body corporate takes out insurance for the complex and the insurer has not been made aware of the alterations, it could affect the replacement value and hence the premiums. If the insurer has not been informed it could create issues in the event of a claim.”

People who live in freestanding homes, also called freehold, are usually required by their mortgage provider to take our insurance that covers the physical structure of their house against unforeseen events like storm damage, fire, landslides or earthquakes. Once the home is fully paid for and is in your name, one could theoretically dispense with this insurance but Hay warns that this would be ill-advised.

“Your home is usually your most valuable asset so the last thing you want is to spend twenty or thirty years paying it off only to lose it because of a fire or some other disaster,” he says. “It’s always a good idea to make sure your most valuable assets are insured.”

One important piece of advice is to make sure you insure the house for its replacement value and not its market value. For example, your home may be worth R2m in terms of who much you could sell it for, but the cost of rebuilding it could be considerable higher. In the event of severe damage from a fire or earthquake, there may also be additional costs like rubble removal and site clearance as well as engineer and architectural fees.

“You must make sure you insure the house for what it would cost you to rebuild in the event of an unforeseen disaster and not the market value,” says Hay. “The main reason for this is that the housing market often takes a dip during tough economic times but the cost of cement, bricks and labour usually continues rising.”

Yet another consideration that one needs to bear in mind is that insurance by definition is designed to cover sudden and unforeseen events and not issues related to maintenance. Your homeowners insurance, which covers the physical structure of your property, would therefore cover things like earthquakes, landslides, fire and storm damage. However, gradual damage that occurs over time due to things like rising damp or even land slippage may not necessarily be covered as these would be deemed maintenance issues.

“As with insuring a car, your insurer expects to be insuring a roadworthy vehicle so by the same token, when you insure your home your insurer expects that it has been properly constructed and that the foundations are able to withstand the gradual movement of land,” he says. “Once off events or so-called acts of god like massive storms or landslides are entirely different from gradual issues that occur over time and are often related to maintenance.”