After reading the post: Comprehensive Home Insurance, we knew you were prepped up and ready to buy your very first home insurance policy. However, before you make a run for it you need to read this post. You need to discover the pitfalls to avoid when making such a decision. So before making that call to your preferred insurer, please read this first.
Buying an insurance policy is not like buying groceries. You cannot just dash to your insurer like you would to the superstores with a shopping list. Insurance generally is a technical product. In that wise, you need some basic knowledge of what you want to buy before drawing your cheque.
Here we have made a list of 8 mistakes to avoid so that you will not regret after buying that Comprehensive House-owners/Householders Insurance Policy.
Mistake #1: Focusing On Price Against Coverage
Many insurance buyers place too much importance on the premium (cost) of the insurance they are buying. This is a very wrong approach to purchasing insurance. Approach insurance purchase this way and you will end up buying ‘a cheap but useless policy.’ The use of the word useless here does not mean worthless. What we are saying in effect is that such policy will not be of help in times of need. For instance, if you bought a cheap policy without reading the terms and conditions you might end up losing. How? The insurer might increase your excess or reduce some policy coverage which might not mean much until there is a claim. For example, Ade bought a car insurance at a ridiculous rate of 3% against 5%. If he is not careful, the insurer could raise his excess to accommodate the reduced rate.
Couple of years back, an insurer almost rob one of our clients. We negotiated 3% for the client’s car and after agreeing, the insurer placed a value of N50m on the Third Party Death and Bodily injury which normally is UNLIMITED! Now, setting the value at N50m from this example can translate to trouble at the event a claim. For instance, if that car caused the death of an individual and legal proceeding ensued. Assuming the court ruled that our client should pay the estate of the victim the sum of N100m. Then, the insurer would pay the policy limit of N50m and our client would be forced to bring out the balance from his pocket. This is why you should focus more on the coverage given and not the price. You must dig into the terms and conditions of any policy to avoid being misled by the cheap price.
Mistake #2: Inadequacy of Coverage
When buying Home insurance it is imperative that the cover given is adequate. You must fix adequate figures for all the sections of the policy. For instance, the values fixed for the Fire & Special Perils section must be equal to the value of the property insured it must not be lower. Any attempt to reduce the values to cut down your premium can spell doom at the event of claim. Home Insurance is an indemnity policy and therefore subject to average. Average is a principle of insurance that make you liable to bear part of your claim if you under-insure. In addition, the Liability Section of the policy must be commensurate with your risk exposure. The bottom-line here is that values of each section must correspond to the value of items insured.
Mistake #3: Unclear Description of Items
In Property Insurance, care must be taken when listing items to be insured. Any misrepresentation could lead to repudiation of claim. Do not be ambiguous when filling the proposal form. Some people make that sort of mistake which have led to heated disputes during claims. More importantly from time to time you must keep updating your policy. If there is any new item added (especially high valued items) must be disclosed to your insurer. Likewise, if you remove or sold any item, inform the insurer immediately.
Mistake #4: Insuring Items that are not yours
One of the Principles of Insurance is Insurable Interest. Insurable Interest means legal right to insure arising out of the financial relationship recognized at law with the insured and subject matter of insurance. In practice, for you to insure any item you must have interest in the item legally by ownership, contract or statute. In plain terms, you must own a property or be responsible for the loss of it (property in trust) to be eligible to insure it. For instance, I can only insure a car that is mine. On the other hand, I can insure money or personal effects kept in my custody especially if that is my trade e.g. banks insure people’s money in their custody.
Now as a tenant you can only insure your property (contents) and cannot insure the building of the landlord – you do not have insurable interest to insure it. The reverse is true also. If you insure a property that is not yours at the event of claim, the insurer will not pay the claim although you paid them premium. This is a fundamental issue and you cannot sue them for it.
Mistake #5: Not Shopping Around/Ignoring the pros
When shopping for particular items, it is natural to window shop to get the best deal. Similarly, when buying insurance do not rule out the possibility of shopping around first for the best deal. Although, when shopping, please recall our point: Mistake #1: Focusing On Price Against Coverage, do not sacrifice coverage on the altar of premium reduction. Luckily, you can spare yourself the trouble by contracting an Insurance Broker/Expert. The broker is technically sound regarding insurance and will assist you in getting the best possible cover from the market at a very good price. In addition, you should be aware that you are not going to pay the broker for service rendered. By law, the insurer pay the broker commission to service you. You can see that it a win situation for you.
The list above is not exhaustive. You must avoid the five pitfalls when buying a home policy to make you a happy insured.
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