Buying a home is,
for many, the biggest single investment they make
and protecting it from loss is as fundamental
as preventing rain from coming through the roof.
The chances that a home will fall apart or be destroyed
by fire may be minimal but the consequences could
be
catastrophic. Restoring a pile of rubble or rebuilding
a house devastated by fire is expensive. The most
common and primary household insurance was against
fire, and
it was sold separately as such. However, coverage
has been extended to cover much more – theft,
natural disasters and allied perils, such as flood
or storm,
as well as neighbor liability. Although it sounds
simply like the perfect solution to avoiding the possibility
of bad neighbors, this part of the coverage can be
every much as important as that against fire. In
broad
terms, it covers damage to neighboring property,
if for example a tree falls into the property next
door
or a piece of masonry tumbles and damages a neighboring
building. It can also cover injury to people, including
visitors to your home.
Fire (content and construction)
While the meaning of the term fire seems simple, insurance
companies have their own, legalistic version. Something
is defined as on fire if in normal circumstances it
ought not to be on fire or undergoing the application
of heat. This would mean, for example, that a cake
burning in the oven is not considered as fire. Flames
leaping out of the sofa are a different story! Generally,
when a house is mortgaged, the lender insists that
it is insured, to guarantee that the payments will
continue even if the house is destroyed. In cases where
the apartment or building is not subject to a mortgage,
the owner usually pays the insurance, at least for
the house. However, if the apartment is rented, the
tenant is sometimes required to bear part of the cost,
which may be included indirectly in the rent. There
is a clear separation between insurance for a building
and cover for the contents of that building. With regard
to furniture, fixtures and fittings, and personal belongings,
tenants need to arrange a separate insurance policy.
While the building or apartment is an easily recognizable
major investment, the cumulative value of personal
belongings acquired over years can easily be underestimated.
It is therefore worthwhile to increase contents cover
from time to time to keep pace with new acquisitions.
However, reality is the key here, since attempts at
over-insurance are a waste of money. No insurance company
will pay out, on theft for example, for expensive items
that are clearly out of the range of the insured (and
therefore probably don’t exist). What is applicable
to tenants with regard to possessions is, of course,
equally relevant to homeowners.
Natural disasters
The basis of property insurance is against the risk
of fire and most other circumstances become add-ons
to the policy. Although ‘natural disaster’ is
most often taken by people outside the insurance
business to mean an earthquake, in fact the term
can cover a lot of other circumstances as well. It
may provide protection against wind damage, storms,
floods, landslides, torrential rain, or other non-human
inspired events. However, a building that collapses
after heavy rain has undermined the foundations may
not be covered if there has been negligence in the
construction. Cover against natural disasters can
be applied to the homes themselves, personal belongings,
or the land the property is on, or any combination
of the three. There is an extra charge for insurance
against natural disasters and clearly this is higher
if the property is located in an area known to be
prone to earthquakes. Deductibles often apply to
this kind of cover to prevent endless claims for
replacing a few tiles being hurled from the roof
by a high wind. Again – as in all insurance – careful
reading of what is and what is not covered is required.
Although both the house and the contents may be insured
on a replacement value basis, there is always an
upper limit to the amount you can claim. Specific
items of high value, such as jewelry, may be subject
to special conditions, such as the provision of a
safe, and frequently insurance companies seek a detailed
list of such items, perhaps with independent valuations
and photographs.
Theft and liability
The theft cover is usually restricted to items taken
after a forcible entry of your home. So theft by
a maid or guests may not be covered. Nor is theft
during or after a fire – more properly called
looting – usually covered under the theft clauses
of a home insurance. Property insurance can also
be extended to cover neighboring liabilities – also
called neighbor’s recourse. Such an addition
covers damages done to neighboring properties as
a result of fire coming out of your property or destruction
or any damage to it. It is very similar to third
party liability in motor insurance.
Premium range
There is no fixed range for property premiums, especially
since so many details are involved in its calculation.
The type of property, its structure (cement, concrete
reinforced, wood), the location, the date of its
construction, and the number of stories all play
a role in determining the risk rate. Risk is also
measured for the content, furniture, equipment, safes,
as well as the electricity, heating, and air-cooling,
water systems, stocks of gas and oil supply for domestic
use, and generators. The fire protection available
such as fire extinguishers, sprinklers, and fire
alarms, detection systems, and fire hoses can diminish
the risk rate. Other security measures are also important,
such as easy access for the fire brigade and civil
defense, the presence of security guards, surveillance
systems, video cameras, and ‘no smoking signs’ etc.
The availability and frequency of maintenance is
also significant and is taken into consideration.
Previous losses can increase the risk rate of your
property, but concealing previous claims – perhaps
from a different company – will not eliminate
this problem; it will merely invalidate your insurance.
Which floor of a building you live on can also affect
the rates for content cover, with ground floor flats
being considered at greater risk. Some companies
may insist on bars covering the windows.
Average rates are usually appointed to each type of
risk, fire, natural disaster, theft and neighboring
liabilities, depending on the type of property. Those
rates are taken as a starting point and will vary after
the study of each case. The rates are usually given
as per thousand of the sum insured for each type of
coverage.
Deductibles
When natural disasters are added to the property insurance
policy, one percent of the value of the content and
the construction is applied as a deductible. This
means that in case of an earthquake, for example,
the insured will have to pay that amount of the replacement
value of the property’s construction and content,
and the insurance company will bear the rest. A higher
deductible, 10 percent of the value of the claim,
is usually applied for water damage such as from
bursts or flooding. Deductibles are imposed in order
to reduce the premiums for property that otherwise,
relative to other insurance policies, are very high,
and, as noted above, to eliminate small claims.
Exclusions
Like all insurance policies, property cover also has
exclusions, which in some respects are even more
critical because more details are involved in property
insurance. The most common exclusions are:
•
Incidents arising out of any breach of the law by the
insured
•
Direct or indirect consequences of hostile act or acts
of war, strikes, riots, and/or civil commotion
•
Premeditated or intentional damages caused by the insured
himself, or as a result of a conspiracy with the insured
•
Damage caused as a result of negligence such as leaving
lit cigarettes, heaters, or cookers unattended;
•
Theft of belongings during a fire
•
Terrorism
•
Vandalism during a political demonstration, and
•
Nuclear risks.
Exclusions are detailed in the policy and some can
be waived, subject to the payment of an additional
premium.
Applying for
property insurance
The property application form is one of the longest
in terms of detail. In addition to the name of the
applicant (whether tenant or owner), the companies
require the full address of the property, the plot
number, the type of property (residential or office,
retail or factory), the story to be insured, and the
period of insurance. Other sections in the application
would concern the sum to be insured, broken down into
building, contents, neighbor’s recourse, and
other risks. Particulars of the building, the furniture,
and the machinery or equipment are also required, as
well as the fire protection measures available. A detailed
description of the neighborhood is also required, and
there is a complete section to be filled in with regard
to theft insurance, if that is taken as part of the
policy. This section details the particulars of the
main entrance and other doors and windows, and would
inquire about the security measures such as locks and
alarm systems. The insurance company will generally
study each case by itself and assess it accordingly.
Sketches and/or photos of the property should also
be provided.
What to do if
your house is damaged
As a rule you must notify the insurance company within
a maximum of three days of knowing about any damage
done to your property. You will usually have around
two weeks to provide a written declaration of the incident,
which should include a detailed description of the
damaged belongings and their estimated value.
When the insurance company is notified, an expert will
be sent to the property to make an inspection and to
estimate the value of the damage. His report to the
company is very important in their decision on whether
to pay and how much to pay. Your declaration should
also mention whether all or some of the items for which
you are claiming are also insured with other companies.
Any faulty declaration or concealment of information,
even if unintentional, will at best result in the insurance
policy becoming void, and at worst in a criminal prosecution
for attempted fraud. After the claim has been assessed
and processed, you will be reimbursed depending on
the sum insured for each type of loss, whether resulting
from burglary, fire, or other risks such as water damage
or earthquakes.
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