QUESTION: I bought a house for $7 million in 1999. The purchase was financed from my savings and a credit union loan. The three-bedroom building is insured for $6.5 million. The loan balance will be repaid in a few months. What can I do make sure the house is properly covered?
- T.D.S., Mandeville, Manchester.
Answer: I agree with Information Minister Burchell Whiteman. Citizens have a duty to look after themselves [and their families]. The state may provide some help. However, the main duty rests with individuals. This rule applies to all areas of life - including protection from the risk of disasters. "Gov-ernment (cannot assume the primary role of) insurer for individuals." To rephrase him, 'cuddling' plays an important part in life. When it comes to the business of managing risks - forget it!
The time is ripe to conduct a review of the insurance on your house.
Weather forecasters say that we will have a very active hurricane season this year. The evidence is clear. Dennis, Emily, Franklin and Gert confirm this. Some prefer to play the odds. They self-insure. You, on the other hand, follow what I call the GraceKennedy example. You use the risk transfer [insurance] market to buy peace of mind.
Here are 10 things you can do to ensure that your policy will 'hug up the losses' if your house were to suffer damage.
Call your insurance company/ agent/broker to conduct a review of the coverage and the sums insured or limits. This will help you avoid nasty surprises.
Bear in mind that the sum insured of your house should represent 'the full value' at the time of loss. This means that if the building is under-insured by, say, 30 per cent, your claim will be discounted [or reduced] by the same amount. Many persons forget this. Construction costs are like interest rates, the price of gas, vegetables or other goods - they are always moving. The recent hike in GCT, for example, means that if $6.5 million was the cost of rebuilding your house six years ago that amount will not be adequate in 2005.
If you have made improvements or additions to the building make adjustments to your sum insured.
4. Investigate the cost of getting a valuation for insurance purposes. If this proves to be too expensive calculate the square footage of the building. Give competent builder details of the construction and ask him to estimate the rebuilding costs per square foot based on today's prices. Even though the second approach tends to be rather crude it is better than doing nothing.
5. If the cost of making necessary revisions to your policy seems prohibitive, consider getting premium financing. This can help you spread the cost over nine or 10 months instead of finding the money all at once.
6. Make sure that you understand what the policy covers and what it excludes.
7. Losses arising from earthquakes, hurricanes and floods are partially insured. Coverage is triggered only where the loss is greater than two percent of the sum insured. This means in your case that you would have to fund losses of up to $130,000 before the insurance trips in.
8. Find out exactly what you should do in order to file a claim and familiarise yourself with the claim settlement process. Do not wait to learn after something has happened.
9. Pay any outstanding premium which is owed on your policy. Insurers are unlikely to settle claims if you owe them.
10. Develop a personal disaster plan for your home. ODPEM recommends this. Takings steps to ensure that your house insurance will operate effectively should be seen as part of that plan.
If you do these things, they will prevent a temporary setback from becoming a catastrophe.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
