By Finbar Garcia, LUTCF, FSS, MFA
As we continue our discussion on the biggest investment asset we own or want to acquire, a house, I want us to look at the possible financial losses that can occur if not adequately insured.
While some persons build a variety of investment assets for future use and as a means of income, there are two main assets I want us to focus on: your house and your contents.
Your house: This particular asset is by far the most expensive, so why invest in this and leave it exposed to the many elements and perils that can destroy it in a flash?
Having the correct insurance policy is key to securing your entire property and knowing the current insurable value is very important. While some persons tend to look at the cost of the insurance, and this may be a factor based on their current financial position, it may also mean not having the secured coverages for all the perils.
Having a fire-only policy means that you are securing against one peril only to save money, but you will expose the property to everything else.
What are the other perils? Fire, lightning, explosion, aircraft or vehicle impact, hurricane, flood, earthquake, burst pipes, smoke damage and theft.
There are more that can be added or may form part of a Comprehensive House Policy from the insurer. If you have any outer buildings like a gazebo or even a swimming pool, these should be included in your coverage.
The next thing you need to know is the replacement value—don’t confuse this with the market value. While your property purchase cost was much less years ago, and this most likely was both the house and land, the land will not be insured, only the house, so knowing the current cost to bring it back to where it was prior to any damages or loss is very important.
By using current replacement values, you can increase the coverage every year to stay in line with inflation, ‘the present cost to build it back’ with the high cost of materials today.
Having your property underinsured also has some serious financial consequences if a loss happens. We have seen or even heard of families losing everything when their house was destroyed, and eventually having to seek assistance from families and their local authorities, because of not having house insurance or very little to rebuild.
Knowing your policy is also important, as these insured perils may carry limitations and or payments called ‘excess’, which are either of a minimum dollar amount or percentage of the insured value.
When a loss is incurred, there are other benefits that your policy may carry, like removal of debris, loss of rental income or cost to rent while your property is being reconstructed, just to name a few.
While living in your house, I know you will also have beautiful items of great value inside, these are called your contents. So, let’s look at content cover.
Contents Cover. Like your home, your contents carry a significant value based on your style and taste for expensive items. Contents cover can be added to your comprehensive home policy.
If you are renting, you can only insure your contents, as you don’t own the building. This type of policy covers ‘old for new’, all the basic items that you have and more.
Insuring electronics with your contents cover is also allowed; however, more details will be needed on these items, as they can be stolen easily. Items such as laptops, tablets and other similar devices can also be covered, to extend beyond our country.
The ‘old for new’ means that the items you purchased years ago will cost you more to replace today, so you need to have the appropriate coverage to buy back these items.
We know that fire will destroy everything, but your contents may get destroyed or damaged due to other perils like hurricanes, storms or even floods. When you compare the value of your contents against the premiums payable for the coverage, it’s a very small percentage.
These premium rates basically remain fixed, both house and contents, and renewed on the anniversary date of your insurance policy. Having these two coverages will also give you some additional protection known as ‘Liability Cover’, which covers you against lawsuits for bodily injury or property damage that you or your family members cause to other people, including domestic workers fully employed by you.
It may also pay for damage caused by your pets, fallen trees that damaged your neighbour’s property once they are not poorly maintained or had a disease or rotted.
This liability cover also takes care of legal fees and court awards for damages up to the policy prescribed limit. This coverage may also protect you or your family against damages or injuries that may happen away from home.
Let’s say you are taking your child for a ride with their bike at a public park, and they accidentally hit another child and cause injuries or damages to property, your policy will protect you.
Once you decide to effect these two basic policies as part of your asset protection, you may want to consider a premium financing package. This will allow you to pay these premiums monthly, usually over ten months and avoid the large outlay of cash and can be factored into your monthly budget.
So, until next time, “Because he has set his love on me, therefore I will deliver him. I will set him on high because he has known my name” Psalm 91:14.
Call me for more information on planning your financial future. Send your questions to email@example.com or call 620-1185.