The costliest home insurance mistake you can make


Posted at Aug 23 2014 02:54 PM | Updated as of Aug 23 2014 10:54 PM

MANILA, Philippines - When buying home insurance, you need to be careful to read the fine print or you might just be making a costly mistake.

A viewer named Aisha, who recently lost her home in a fire, shared her story on ANC's On The Money. Her family has home insurance coverage, but with all the exclusions that they never paid attention to before, they are now having difficulties.

Before the fire gutted the family's home, Aisha and her husband were planning to retire in a couple of years, and even looking forward to selling their home when the market recovered in the US.

ANC's resident financial adviser Salve Duplito said the biggest and costliest mistake people make when buying property insurance is failing to understand the exclusions.

"Contracts are boring. They are written in fine print and in legalese, but here's a thought: How difficult would it be to change the slant of legal contracts to protect the consumer, rather than the corporation? All it takes is better font size and easy to understand English," she said.

Duplito said this may seem simple but it's not happening because consumers are not making a fuss about it.

Since consumers are stuck with these contracts, property sales coach Carl Dy cited three things should watch out for in a home insurance contract: amount of coverage, exclusions and protection against earthquake, fire, force majeure, flooding, etc.

"Double check if your insurance can protect you against depreciation," Dy added.

"Most insurance companies deduct depreciation from claims payout, unless you get a cover based on replacement value rather than sound value," Augustus Ferrerria, president of MoneyDoctors Inc., said.

This means when you buy home insurance, think about how much it would cost to rebuild your house, instead of getting coverage only for the cost of your mortgage. That's only around 80 percent of the value of your home and does not account for depreciation.

Duplito said you should also revisit your coverage regularly, especially when you expand your home. But this means you will have to pay more.

You should also protect yourself from loss of contents like jewelry, art, antiques, computers, equipment, among others. Take photos of the contents of your home to make it easy to file for claims.

Ferrerria and Dy also raised an important point: If a property is not fully destroyed, you only get a fraction of what you would expect your payout to be.

"Engineers would tell you this usable part is often the foundation of the house. Specify that if a fire occurs, the foundation should not be included in the calculation of the net cash benefit due to you," Ferrerria said.

Ferrerria advised that you should treat the insurance adjuster well when he comes to estimate the damage at your home, since he is as much on your side as the insurance company's side. Their mandate is to stand in the middle and be impartial.

Duplito said you should always read a contract and understand it. "Ask questions and don't worry about looking stupid. What's the use of looking smart if you lose money because of it," she said.