To insure or not to insure?
Words of wisdom on home insurance — and whether you can even get it
| Text : Elizabeth Kerr |
| Photo : www.thinkstockphotos.com |
Very often, when searching for that perfect home or prime investment, property buyers often let the simplest things slip their minds, like insurance. The insurance industry and its constituent parts are often the subject of fury (Americans and their health insurers seem to be locked in a long-term battle) or the butt of jokes (insurance jokes are almost as common as lawyer jokes). Nonetheless, insurance is key to buying — and keeping — a home explains Lila Wong, Senior Business Manager at Prudential.
Do you really need to be insured?
This is one of the oldest questions in the book and it’s something that is still debated at every social strata. The prevailing idea is that insurance is for the very wealthy or for health or death benefits. But home insurance shouldn’t be dismissed out of hand — though it is completely optional. House owners assume insurance as part of the standard package, but flat owners are getting into the market in larger and larger numbers.
While there’s no insuring yourself against structural damage if you’re in a flat, you can sometimes save yourself a little agony from, most prominently in Hong Kong, fire and water damage — caused by yourself or others. “If you have expensive appliances, furniture or décor, you should get insured. Standard home insurance includes fire hazard, water hazard, and third party liability insurance,” Wong explains. So if your home burns down for any reason, a pipe breaks, or the fire department ruins your flat rescuing the neighbours, you’re covered. And what about that third party liability? “Should you toss or drop something from a window, you’re covered if it hits someone below.” Given that Hong Kong is a city that goes up, this could be vital.
Hongkongers don’t have to worry about putting a number on everything they own either. “If your insurer accepts your application, the fees are calculated by the size of your home and up to a maximum of 2,500 square feet,” Wong clarifies. “Over that and it’s a fixed amount per square foot per year. There’s also a moderate and high-end insurable amount. At the high end it’s about double the mid-range, which is about $400,000.”
That’s for everything, right?
Not always. “Your insured amount is for your contents,” says Wong, but not all contents are created equal. Some insurers are comprehensive, but there are specialists that deal solely in intangible assets. “Anyone with any highly valuable items — art, antiques, precious jewellery — would be advised to consider having those insured separately. It’s a choice, but with fine art and such it would be wise.” So unless you’ve donated your rare Picasso to the Met, you need a second (or third) policy.
Should you buy a home based on whether or not insurance could be obtained?
The rules of real estate revolve around location, location, location, but an insurance equivalent doesn’t exist. Wong stresses, “When you buy you should consider mortgage insurance first. If your mortgage is $3 million, you should get coverage for the same amount. If you get injured or made redundant and you can’t work your insurance pays your mortgage and you’re not out of a home.” Mortgage insurance comes up again and again, and its something a lot of homebuyers frequently forget about.
Another factor that often comes into buying a home is how much additional work needs to go into; is it a so-called fixer-upper? Wong advises putting that out of your mind. “Almost all homes qualify for insurance and the age of the building doesn’t impact that. You don’t need contents insurance if your rent your property out, but you should still consider the liability insurance. You don’t know what’s going on when you’re not there.”
Age before beauty?
The only time the age of a building becomes a factor in insurance is when it comes to your mortgage. Older buildings pose a higher risk for banks, and so most times there’s more cash involved with an older unit. “Some, not all, banks will require that you buy mortgage insurance at the very least, but older buildings are more cash-based transactions. Banks just don’t want to mortgage old flats.” Without a vested interest, sometimes a bank will let the insurance caveat slide, and because they don’t worry too much about their mortgage risks for old buildings, “they don’t demand an excessive amount of insurance.”
So that sprawling flat with a huge kitchen in a post-war walk-up is more of a personal risk than anything. Wong also points out that, “Buildings that are over 30 or 40 years may not be eligible for fire insurance. Often you get those big flats in mixed-use buildings that can be above mahjong parlours or discos. No insurer will cover you for fire if you’re over a [commercial space] that poses inherent hazards.” That’s assuming you want to live over a disco to begin with and that public smoking laws are being flouted at every turn.
At the forefront of many minds these days is structural integrity, given the building in To Kwa Wan that crumbled in January. Wong maintains that’s a rare, if unfortunate, instance. “There’s is ‘4-corners’ insurance, which is designed to cover for structural damage. But those cases are rare; it’s not something most people look at because you don’t buy an apartment expecting it might collapse.”
Do you need to worry about
the weather?
Whether or not it’s an urban legend or not, we’ve all heard stories about home owners that had a tough time getting insured if they lived in, oh, say, Kansas (smack in the middle of tornado alley), Florida (where hurricane season is a given) or Tokyo (sitting atop one of the world’s busiest fault lines). The short answer is that Hongkongers don’t really have to worry about Mother Nature too much. “There just aren’t that many natural hazards here.”
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