Home and contents insurance can mean different things to different people. For some, the desire is to ensure that their physical building is protected against the financial risks of loss or damage. Protection of personal possessions that make up what is described as contents is a small and secondary consideration.
For others, the major financial risk that concerns them is their personal possessions with the physical building that they live in either covered by another insurance policy or not their concern because it is not theirs.
Either way, owners of valuable assets may be tempted to save on their policy premiums, but when there is a claim, they may find that they are not sufficiently covered. Ordinary home policies can offer low premiums because they come with “small print” limiting the amounts they payout. So, if you own a higher value home and valuable assets, it may be too late when you realise that you are not adequately insured.
The golden rule of general insurance is to remember that you will get what you pay for! The industry is highly competitive and adapted for each country, and premiums are calculated based on the historical loss data of that marketplace. If the premium is low … you can be sure that the coverage is low.
What type of insurance do you need?
Building? Contents? Both? It is vitally important to understand exactly what is insured and for how much. There are typically three types of policies in the marketplace.
The best place to start is to consider what financial losses you cannot afford. Make a list starting with the highest value items—obviously, a physical building is up there, but when most people go through this exercise, they are surprised at what the replacement value of all possessions could add up to. The good thing is that losing all possessions through an event such as a fire has a low probability and therefore, costs less to insure than say the risk of loss through theft or accident.
How much of the financial risk can you afford to absorb? There are three typical types of cover:
- Full replacement
- Agreed value
- Depreciated cost (non-recoverable depreciation)
There is a great risk that the full description of how much you will really receive is hidden in the policy fine print. Always read the policy wording! If there are words that you don’t understand, make sure you ask the insurer for the meaning.
What additional covers are important?
Are you protected against the financial risk of your actions or inactions causing financial harm to other persons? Personal liability cover might be an infrequent claim, but the financial loss from settling that liability can be very damaging.
In the case of fire or flood damage, can you afford the additional living expenses while you can’t live in your home?
Do the policies you are looking at cover newly acquired items? Or do you need to get your policy endorsed for expensive new items?
Are there claim limits on valuable items? Often these limits are buried deep in the fine print.
Are your personal possessions covered outside of your home? What about if you are travelling? Most travel insurances have very minimal coverage for personal possessions.
How does the policy define accidental damage and negligence? This is often buried in the fine print.
Keep good records for insurance
This is a great habit because insurers will require proof if claiming.
How you complete the proposal form often has a significant influence on both the cover that you end up with and the premium you pay.
Whilst it’s easy to think home and contents insurance is a “tick the box” exercise, thorough financial planners assist clients to understand and acquire the cover that will “do what it says on the tin” and meet their needs when it matters. This is especially true when there are valuable possessions that are part of what makes their clients who they are … like homes, collectables, heirlooms, and passions.