This article provides important tips for homeowners to consider. These ideas will help you to avoid possible legal or financial issues in the future.
Joint Tenants or Tenants in Common?
Owning an asset as joint tenants means that on the death of one owner, the property automatically passes to the surviving joint owner(s). The legal impact of this is that there are minimal costs in transferring the asset into the name(s) of the surviving joint owner(s) and that the ownership of the asset by the survivor cannot be threatened by any challenges to the will of the deceased.
If your residence is in the sole name of one person, we would suggest that you come and speak to us about transferring your home into joint names under the stamp duty exemption to avoid costs on the death of the person whose name property is held in.
Tenants in Common
Ownership as Tenants in Common enables ownership in different shares and enables the different owners to leave their share to people other than those with whom they jointly own the property. (eg. to a sibling or child).
It is crucial people ensure they have adequate insurance coverage. The three major reasons why people may not get full coverage under their insurance policies are:
- The difference between a replacement (or reinstatement) policy and an indemnity policy.
Our firm has been consulted over the years by a number of clients who had older houses destroyed by fire and when they lodged a claim they had received a lesser amount than the insured value, because the policy was an indemnity policy.
The basic difference between a replacement (or reinstatement) policy and an indemnity policy is that under an indemnity policy the insurance company depreciates the value of the replacement building or item depending upon its age.
For example, if your house was insured for $100,000 under an indemnity policy and the cost of replacing the house is $100,000 then the indemnity policy provides that the insurance company can depreciate the value of the house by multiply the age of the house by one per cent. If the house was 64 years old, then the amount payable under the policy would be the replacement value of $100,000, less depreciation of 64 years multiplied by one per cent, or a final amount of $36,000 after depreciation. We would encourage you to check your policy and any person with an indemnity policy should give consideration to changing their policy to a replacement policy.
A replacement policy is especially important for older houses such as farm houses. Farmers and people in rural country towns often are the owners of houses more than 60 years old, which are serviceable, but if destroyed could not be replaced under an indemnity policy, for example.
People insuring the house should REGULARLY CHECK THE REPLACEMENT COSTS OF BUILDING A HOME.
The following matters should be considered:
- Calculate the cost per square of the house. For example if the house is 12 squares, then the current replacement cost would be around $7,000 - $10,000.00 per square.
- When calculating the replacement costs fixtures such as carpets, light fittings, hot water services, fences and driveways should be taken into consideration.
- Under insurance (co-insurance clause).
This happened when the replacement cost exceeded the sum insured. A typical co-insurance clause provides that if you undervalue your property by more than 20 per cent, the insurance company will pay a proportionally lower sum for any claim.
For example, if the replacement cost of a house is $90,000 and it is insured for only $60,000 and if half of the house is destroyed in a fire and will cost $45,000 to replace, the owner will only receive $37,500, even though the insurance coverage is $60,000.
- Not checking the terms and conditions of the policy, especially in relation to risks such as flooding.
Generally insurance policies would not cover damage caused by war, nuclear explosion, flood and the application of heat such as using a blow torch.
Choice magazine in an article dated August 1989 concludes "the most significant of these for most people is flood. Most companies cover for water damage from leaking or broken pipes, or if a storm makes a hole in the roof and lets the rain in, but policy wording generally excludes flood damage that is the result of rising waters. Cover for flood damage is sometimes available at extra cost, but in flood prone areas it may be too expensive or simply unavailable.
Home-owners with a house located in an area which is subject to potential problems such as flooding or fire, should check the terms and conditions of the policy with their insurance agent or broker.
Most house and contents policies cover you for legal liability (public liability). This means the policy covers you for any claims made by a persons for damage to their property or person that arise as a result of the house or contents.