Fire, Fire Burning Bright

By Finbar Garcia, LUTCF, FSS, MFA

Pennies to the pound or should I say cents to the dollar! What does it mean to the family when you see a house being destroyed by fire?

Of all the perils, fire is considered one of the most dangerous and destructive of all. Are you really covered? Or better yet fully covered?

We have all heard many horror stories about homes being partially burnt or destroyed and even lives being lost. While we cannot bring back the deceased, we can surely minimise the financial losses incurred by fire.

There are many families who believe that this would never happen to them, and they may be correct, but insuring your home and contents does not cost you an ‘arm or a leg.’

When fire destroys a home, it does not limit its damage: it will take everything in its path if action is not taken immediately. However, there are unguarded moments when things will happen.

Owning your home or even renting somewhere to keep your family happy and safe costs a lot of money, including all the contents that you worked so hard to acquire over the years; some you may still be paying instalments.

If you bought your home through a mortgage with a financial institution, you would be required to have a fire policy at a minimum. What this means, is that there are persons who prefer a fire-only policy to cut cost and maybe insurers offer a straight fire policy with a low premium, but all the other perils are not covered.

We cannot predict what risk or peril will come our way, so it’s better to have a Comprehensive Homeowners policy. These comprehensive policies offer a variety of coverages that really do not cost much more than a straight fire policy.

The big question is, how much is your property and contents insured for? Are you still carrying that value that you had many years ago?

What you need to do is have coverage that is considered or referred to as the ‘Current Replacement Value’. With the rising cost of building materials today, the cost to rebuild your home (putting you back in the same position you were in prior to the loss) will be much more than you bought or built the house for.

In the recent past, there were several house fires nationwide, where an officer of the Trinidad and Tobago Fire Service noted on national television that there is an average of 800 house fires per year, that’s about two a day!

While some of those houses may be in specific insurable classes, some may not be insurable, but a financial loss still occurred.

Renters (tenants) also have a responsibility to insure their contents; they cannot expect their personal contents to be covered with their landlord’s homeowners policy.

Property owners will, in most cases, cover their assets, which will include any perimeter fences, gates, and external buildings. Renters should consider the current replacement cost of their contents. Even though the contents depreciated over the years, there is still need to cover the contents based on current cost to replace the items.

Let’s look at some of the perils that a Comprehensive Homeowners policy covers and average cost if the property is underinsured based on a loss occurring. Note: Actual figures will depend on the claims submitted for the risk that’s covered.

While fire may be the main concern, comprehensive policies offer perils to include earthquake, windstorms, hurricanes, tornados, volcanic eruptions, flood, collapse, burst pipes, collision, malicious damage, riot, and strike, even retaining walls.

The policy also carries another type of coverage known as Liability Cover. This covers both public liability, and liability to domestic employees.

Let’s look at two cases (see Case 1 and Case 2) where two properties were insured, but one property was underinsured, and the Average Clause is used to determine the amount to be paid based on the loss.

This is the formula used. Claim= Loss Suffered x Insured Value ÷ by Current Value.

Having property underinsured adds to the financial difficulty that already exists. What this is telling the insurer is the insured is prepared to fund that extra cost in the event of a loss.

Because the insurance policy is a contract of indemnity, the insured cannot claim more than the actual loss, so having multiple insurance policies on the same property will appear to be fraudulent if a claim is attempted from the full loss from all the policies.

This Average Clause only applies when the sum insured is less than the Actual Value of the property. It is advisable to have coverage in line with the property’s current value.

Most insurer rates vary (rate per thousand). However, if the rate is at the lowest end, what is insured and how quickly claims are settled by the insurer are understood. Don’t be ‘penny wise, pound foolish’.

Call me for more information on planning your financial future. Send your questions to myfinancialadvisor2020@gmail.com or call 620-1185.