What You Need to Know About Property Insurance
A Sense for Money
I am planning to buy a property next year. What kind of insurance coverage will I need?
You need to set the level of cover you need for the contents of your residence separately from the building itself. As an example, you may decide to insure your property for $300,000 and its contents for $80,000.
Often the insured amount of a property is less than its market value because even if the building is totally destroyed, you still have the value of the land. So in the example above, the market value of your house may be $500,000, but if it burns down you would be able to rebuild for $300,000 or less. Hence the lower amount for insurance cover.
The next consideration is what type of cover you need.
There are many risks such as fire, earthquake, flood, burglary and the like. Often premiums are lower if you exclude certain risks such as flooding, but you will surely have read about sad cases where property owners have skimped on flood insurance as they are well away from a river only to be hit by a freak flood caused by a once in a lifetime storm. So, be careful about excluding risks just to save a few dollars in premium.
Another thing to bear in mind is any existing cover you have. If you took a loan to buy the property your lender may have included some insurance as part of your mortgage deal. Similarly some condominium owners may arrange group cover for the building itself and include the costs in your service charges. Key message is that it is inappropriate to double up on cover.
As always, insurance can be complicated and bewildering for the uninitiated, so no harm in seeking some free advice from agents or brokers. You can always say “No, thank you” if you get a better deal from elsewhere or feel uneasy with the advice they are giving.
A Sense for Money is an organization that believes that one is never too old or young to be financially aware. With this column, our objective is to answer questions pertaining to various aspects of personal finance, to the best of our knowledge in order to help readers understand a little bit more about the world of personal financial management. We don’t claim to know everything or give any advice on personal finance, we certainly will try our best to share what we know in an easy to understand and simple manner.
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