When money is tight, home insurance is often one of the first expenses to be reconsidered as it’s a significant cost, and claims aren’t made often.
But what happens when the unexpected occurs?
“Typically in Bermuda the predominant reason why homeowners claim for insurance is obviously due to our active hurricane season,” said Tanya Bule, head of International Wealth and Personal Banking & Marketing at HSBC Bermuda.
“But we also sometimes see claims associated with damage due to water leaks or roof damage or many other unexpected issues. Occasionally, we see issues arising from a landlord-tenant relationship.”
HSBC does not provide insurance directly, but acts as a sales agent for BF&M. Most insurance companies in Bermuda offer similar policies.
“I think the primary issue related to insuring property is property potentially being underinsured,” she said.
“This is when there is a gap between the insured value of the property and actual replacement value. This can occur for many reasons, such as the rising cost of construction.
“Thankfully, we don’t see this very often, but what you can sometimes see is that the projected cost of replacement doesn’t actually meet the cost of rebuild or replacement.”
Take responsibility
It’s important, then, that the value of a property reflects current market conditions and takes into consideration any upgrades or high-end finishes that may have been installed.
“Sometimes people see this as the responsibility of the insurance company, but it really is the responsibility of the homeowner, or the asset owners themselves,” Ms Bule said.
“The challenge of that is, of course, if unfortunately the worst did come to pass, you obviously want to be able to replace your home. It is a borrower’s legal obligation to ensure that any mortgaged property is adequately insured at the property’s full replacement value.”
Unlike in the past, total property losses may increase with the prevalence of stronger storms due to climate change.
“You need to make sure you’re adequately insured for all types of probabilities and this assessment should take place every year upon renewal of your property insurance,” she said.
“We recommend discussing this with your insurance company. We strongly recommend insuring your property for the entire current value of the property or there could be some serious issues if you have to make a claim and the property was not insured for its full value.”
Avoid a big risk
Most people, Ms Bule believes, understand why insurance premiums are necessary.
“Especially if you’re seeking financing, they’re aware that it’s a requirement to insure the property for the full replacement value of the property. We explain to customers that this insurance doesn’t only protect the bank, it protects the customer as well,” she said.
“But insurance is generally one of the first things that people try to ‘do without’ when they are in financial distress. Not only could this breach the terms of a borrower’s mortgage, but it is like playing Russian roulette with their future financial health.
“We encourage people to discuss different options for paying premiums, such as where a customer can pay premiums annually, monthly or quarterly, to try to ease the financial burden.”
