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Interest rate hikes and home insurance: How to navigate the changes

Interest rate hikes and home insurance: How to navigate the changes
24-05-23 / Tommy Jackson

Interest rate hikes and home insurance: How to navigate the changes

Cape Town - According to investment analysts South Africans will likely have to brace for another interest rate increase later this week, as the South African Reserve Bank (SARB) holds its Monetary Policy Committee (MPC) meeting, with a rate announcement expected on Thursday (25 May).

For most homeowners in South Africa, the possibility of another interest rate hike can be intimidating.  For most homeowners in South Africa, the possibility of another interest rate hike can be intimidating. In an article by Accenture Africa, it was recorded that household debt in South Africa had since 2006 exceeded 65%.

The rise in interest rates, rolling loadshedding, increasing costs of petrol, food, among others, have put a strain on the disposable income of South African households. 

“Home insurance is very seldom an optional extra in South Africa. Owning a home comes with risks, and to get a home loan the banks insist you have adequate cover on the property. So, you need to ensure your home insurance works for you, and you get the most value out of it,” said Attie Blaauw, Santam’s Head of Personal Lines Underwriting.

“It's crucial to consider the cover provided by each policy. While a cheaper premium may sound appealing, you will need to be sure that the policy adequately covers your home and valuable possessions. After all, true peace of mind comes from having the right protection,” he added.

Blaauw shares tips on how best to find affordable home and personal lines insurance and how to maximise it – to reduce the interest rate impact on your budget.

  1. Budget for potential rate hikes: When interest rates rise, your home bond repayments may also increase. You can avoid the financial strain by building a reserve with additional funds added to your savings or flexi bond when interest rates are more favourable or lower. That way, you'll have enough funds to cover any increases that may arise over the years.
  2. Save costs with combined insurance: Some insurance providers offer insurance bundles that cover your building, contents, and car combined. This can work out be much more affordable than paying for three separate insurance products.
  3. Explore value-added services: Savings aren't always obvious from your monthly debit orders. Some insurance providers offer discounts, free services, and other great value additions. For example, Santam provides free value-added benefits like home emergency assistance, roadside assistance, and home drive assistance, ensuring you're taken care of in various situations with ease.
  4. Shop around for affordable home insurance: Most banks require homeowners to have property insurance before extending a bond. However, after moving in, you might not have given your insurance premium a second thought. It could be worth reevaluating your insurance and comparing quotes from different companies to find a more affordable home insurance You're not obligated to stick with the original insurance company, even if it's the one provided by the bank who gave you the loan.
  5. Up your excess. One smart move to save on your monthly insurance costs is to consider increasing your excess. By opting for a higher excess amount, you can potentially lower your monthly insurance premiums. Just remember, it's essential to make sure you can actually afford to pay that excess in case you need to make a claim. Try to find that sweet spot where you save some cash without putting yourself in a financial bind.
  6. Ensure your coverage evolves. As your life changes, your insurance needs change too. If you've downscaled your home, moved to a new place, or sold off some valuable items, it's important to adjust your insurance coverage accordingly. By doing so, you might find that your monthly premiums become more budget-friendly and personalized.
  7. When in doubt, speak to your insurance broker. If you have a broker acting on your behalf (or not) and you're having a tough time affording your home insurance premiums, don't hesitate to contact your insurance provider. They might be able to offer you a more affordable policy or give you advice on how to reduce your premiums. It's always worth a conversation to see what options are available.

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