By Duncan Hall
When money is tight, it can be tempting to cut corners – but, as an insurance expert explains, scrimping on the protection that you arrange for your home is a false economy.
Stephen Muso, the head of personal lines at BF&M, underlined the importance of securing an appropriate level of insurance to protect against damage to your home and its contents.
He said: “The importance of insurance is not just for when storms hit the island; you’re also protecting your investment from other types of losses.
“Buying a home is the costliest investment most will make in their lives, and you want to protect that investment in case of major damage or total loss.”
Anyone who doesn’t insure their home at all is likely aware of the risk they are taking – but some homeowners who do arrange coverage don’t fully understand the risk of being underinsured.
Underinsurance occurs when a homeowner insures their home or contents for less than the cost to rebuild what has been destroyed or replace what has been lost.
The amount that a home and its contents is insured for is referred to as the “sum insured”, which should represent the full cost to rebuild or replace in the event of a total loss.
However, even the most responsible homeowners can end up insuring their home and contents for less than the advisable amount.
BF&M says that occurs when a homeowner initially sets their “sum insured”, but never revisits it, which is problematic because the replacement cost of a home will increase over time due to inflation.
| Understanding underinsurance Consider the case of a homeowner who chooses a “sum insured” of $500,000 for their home or contents in circumstances where the true replacement costs are $1 million. Underinsurance clauses are based on the principle that if you pay only a portion of the premium that you should be paying to fully cover your home or contents – then you can only receive back an equivalent proportion of any claim. |
Mr Muso said: “We take every opportunity to educate our customers about underinsurance and the impact of being underinsured at the time of a loss. You might save a few dollars on premium when you are underinsured – but then you may have to pay more out of pocket to repair damages at the time of a loss.
“We can’t force customers to insure their properties for an appropriate sum, but we must make them aware of the consequences of not doing it.
“At the end of the day, we want to provide our customers with the information they need to make an informed decision. It’s just about continuously getting that message out to customers.”
To protect homeowners against the dangers of underinsurance, BF&M has introduced an optional index-linking feature to home policies.
Under the plan, a homeowner’s “sum insured” increases by a set percentage at each renewal, and their premium increases proportionally to reflect the adjustment in coverage.
BF&M said index-linking is most effective when an existing policy reflects the true present-day rebuilding/replacement costs on all insured items.
Mr Muso said: “We have some clients that will routinely check their policies every year at renewal, however, we see more calls when there are storms, or potential threats, predicted. That is the trigger point for most customers. It is important to make sure your insurance coverage is always up to date.”
