Pays Your Home Loan When You Can't!
Many homeowners in South Africa confuse bond cover with homeowners insurance, assuming they provide the same protection. While both are essential when financing a property, they serve very different purposes. Understanding the distinction between these two types of cover ensures that you protect both your family’s financial future and the physical structure of your home.
When you take out a home loan, your bank will typically require certain forms of insurance before approving the bond. These requirements are designed to reduce risk for both you and the lender. However, knowing exactly what each policy does — and does not do — is critical to avoiding costly gaps in coverage.
Bond cover is a type of life insurance specifically structured to settle your outstanding home loan balance if you pass away during the bond term. In simple terms, it ensures that your family will not inherit the debt attached to your property.
If you die before your bond is fully repaid, the insurer pays the remaining balance directly to the bank. This means your dependents can keep the home without worrying about monthly repayments. Without bond cover, your family would either need to continue paying the bond themselves or sell the property to settle the debt.
Depending on the policy, bond cover may also include additional benefits such as:
There are two main types of bond cover: reducing cover, where the payout decreases as your bond balance reduces, and level cover, where the payout remains fixed throughout the term. Most homeowners choose reducing cover because it aligns with the declining bond balance and is generally more affordable.
Homeowners insurance — often referred to as building insurance — protects the physical structure of your property. This includes the walls, roof, permanent fixtures, and sometimes outbuildings on your property.
Homeowners insurance covers damage caused by insured events such as:
If your home is damaged or destroyed by one of these events, the insurer pays for repairs or rebuilding costs — up to the insured value. Importantly, homeowners insurance does not pay off your bond if you pass away. It only covers physical damage to the property.
Most banks require homeowners insurance because the property acts as security for the home loan. If the home is damaged, the insurer’s payout ensures the asset retains its value.
The main difference lies in what is being protected:
Bond cover is focused on financial protection for your family, while homeowners insurance is focused on structural protection for the property itself. One cannot replace the other.
To achieve full protection, homeowners typically need both policies in place. Imagine the following scenarios:
Having both policies ensures that neither the debt nor the property becomes a financial burden. Together, they create a comprehensive risk management strategy for homeowners.
While bond cover and homeowners insurance are crucial, they do not protect everything. You may also want to consider:
Reviewing your insurance portfolio annually ensures your coverage keeps pace with renovations, rising property values, and changing financial circumstances.
No. Homeowners insurance only covers repairs or rebuilding costs due to insured damage. It does not settle your home loan balance.
No. Bond cover and building insurance are separate products with different purposes.
Yes. As long as the cover meets your bank’s requirements, you can select your preferred insurer.
The bank requires homeowners insurance to protect the property used as security for the loan, and often recommends or requires bond cover to protect against the risk of unpaid debt.
Cancelling homeowners insurance may breach your bond agreement. Cancelling bond cover could leave your family responsible for the outstanding debt. Always consult your bank or financial advisor before making changes.