Is Your House Adequately Insured?

The year 2005 will definitely be remembered as the year of raging waters, and for some the year of “tornadoes”. It reminded us of the old adage, ‘water will rise to its correct level”. Never in our history did we see so many storms and hurricanes in one year. Twenty-five named storms, twelve hurricanes, six greater than category three making them extremely dangerous.


With one and a half month to go in the hurricane season there is a great gloom hanging over our heads. Will there be any more hurricanes or storms? Will there be anymore flood rains like in 2004 or 2005? But what if they were, are you fully prepared? Is your home adequately insured?


It was in 2004 during hurricane “Ivan” that many of us came to the reality that our homes were not adequately insured. How could this be when our mortgage payments included peril insurance?


Well at that time we were introduced to two new terms, one known as the “average clause” and the other “excess”. With no clear definition given we were shown some pointers to better able to understand and appreciate the average clause and the excess. These pointers were:

 That the concept of insurance is the payment of losses suffered by a few, from the contributions (premiums) paid by many.


 Insurance claim settlements are made according to the level of contribution that your premiums represent. Meaning that you will not be fully compensated if your property is insured for less than the true cost to replace your unit.


Put in simpler terms, it means that if your home is valued at $4,000,000 and you choose to insure it for only $ 2,000,000 (due to economic challenges), and should your property suffer damage valued at $200,000, then the amount you could receive is $100,000, but it does not ends there. With your policy carrying a deductible (excess) of 2% of the sum insured for the losses caused by hurricane, earthquake, windstorm and flood. You would have to take care of 2% of $ 2,000,000 (i.e. $40,000). If the loss was caused by hurricane, earthquake, windstorm or flood, your settlement would therefore be reduced by $40,000 and your final payment would only be $60,000.


The example better explain:

The real value of your house $4,000,000
Your insured value $2,000,000
Cost to repair or replace damaged property $ 200,000


Payment before deduction of excess $2,000,000 * 200,000
$4,000,000

= $100,000

Final payment after excess $100,000 -$40,000
= $60,000


Whose responsibility is it?

I know we would like throw the blame at the mortgage institutions and insurance companies, but we all have a responsibility as homeowners, investors to ensure that our investments are adequately insured. If you have made any alterations or improvements to your home that will cause an appreciation in property you should be eager to inform your mortgage institution, as this will guarantee you a full settlement of insurance claims.

If you are an owner of an apartment dwelling then more often than not you are adequately insured through your respective strata corporations. But if you are not sure enquire now before it is too late.

“Knowledge is only power if you use it”.