MORTGAGE LENDER REQUIREMENTS
As all mortgage holders and mortgage lenders will tell you, having home insurance is not only important but is mission critical. In other words, you won’t get a mortgage without having adequate home insurance.
According to Stephen Muso, Head of Personal Lines at the BF&M Group of Companies, “Mortgage Lenders require the home be insured, as they have a vested interest in your home. Moreover, owning a home is an investment and you want to protect that investment.
But to be clear, Nathaniel Butterfield, Operations Manager at Butterfield Insurance says that while “Home insurance is not mandatory in the way vehicle insurance is, there is a reason that if you have a mortgage, the lender will require you to have insurance – they know how a sudden loss can derail your finances.”
In other words, it is not by choice but a “must-have.” It cannot be ignored if you have a mortgage.
COMPREHENSIVE PROTECTION
By definition, home insurance, also known as homeowner’s insurance, is a type of property insurance that safeguards your home in case of unexpected events. It acts like a financial safety net, protecting your dwelling, your belongings, and even yourself in certain situations.
Stephen Muso says, “No one ever expects a loss or damages to occur to their home and/or personal possessions by an event such as a windstorm, fire, or theft, to name a few. Damages caused by these losses can often have an overwhelming impact on your savings.”
But there’s more to financial protection for a mortgage according to Mr. Butterfield, “When we think of Home Insurance in Bermuda, we tend to think of Hurricanes. A normal Bermuda Home Insurance policy covers a lot more than that – you might think of fire, but water can cause as much or more damage.”
“Your home policy will cover you for the damage caused by water from burst pipes which can ruin floors, cabinets, and contents. Lightning is also a frequent cause of damage to buildings and contents (home electronics especially) and is covered under standard policies”, he explained.
LIABILITY COVERAGE
Mr. Muso adds, “Liability coverage provides you protection should you become legally liable should someone hold you responsible for their injuries or damage to their property and typically covers a wide range of causes including fire, lightning, windstorms, flood, earthquake, leakage of water or oil, riot, malicious persons, theft, falling trees and impact by vehicles.”
Some insurance policies may also include Additional Living Expenses – If your home becomes uninhabitable due to a covered event, home insurance may help pay for temporary living expenses, such as hotel bills.
MAINTAINING ADEQUATE COVERAGE
Mr. Muso also says that “You should be insuring your home or possessions for their full rebuilding or replacement cost. By not doing so you can be considered underinsured. The consequence of being underinsured is not having your claim fully paid, which leads to you being responsible for paying the difference in the cost of repair or replacement yourself.”
It is important to recognize that while insurance of any type is a cost-of-living expense and can sometimes be a challenge for some people, the reality is that some types of insurance – such as Home Insurance is mandatory if you have a mortgage – but even more importantly – it is your financial well-being that you are protecting.
THE IMPACT OF INFLATION
In these difficult economic and inflationary times, the cost of goods and services seems to increase almost weekly. Unfortunately, insurance of any kind, especially home insurance, is no exception and increases from one year to the next can sometimes run as high as 5-10% more. And of course, always keep in mind that the underlying purpose of home insurance is to replace the house in the life-changing event of a total loss of the house through fire or windstorm, etc.
That being the case, it is likely that your current house value – or replacement cost – is too low, and hence any settlement from the insurance company in the event of such a loss would not be enough to rebuild your house. In other words, while inflation can increase the premium, you may have to further consider increasing the replacement value from time to time. That will simply add to the premium cost.
BUDGETING FOR COVERAGE
Therefore, it is always financially wise to include the cost of home insurance in your annual budget process, so you won’t be left scrambling to pay for the premiums when they arise.
Home insurance is as much a cost of living expense as electricity, gas for the car, and groceries. Your budget process should ideally spread out the annual cost by month (or at least quarterly) – so that the cash outflows are easier to handle and become a normal monthly or quarterly expense within your financial projections ahead.
A small price to pay for knowing that you are protected when you go to sleep each night.
