We live in uncertain times. Violent
floods and storms, volcanic eruptions, earthquakes, tsunamis, hurricanes
and so on; such disasters have one thing in common; they are
catastrophic risks that rarely affect you in your lifetime, but if they
do happen, the consequences can be devastating. The problem with
catastrophic risk is that because it is so rare, it can be badly
underestimated. Yet, being prepared for a catastrophe can save you from
untold distress.
How fortunate we have been in Nigeria,
yet global climate change seems to have affected even our local weather;
heavy rains fall during the harmattan season and we have long dry
spells in the thick of the rainy season with exceptionally hot weather
climbing to scorching temperatures.
When the rains come; the downpours are
often unusual in their intensity and have caused flooding in many areas.
The weather has never been more unpredictable.
Continue after the cut...
Such vagaries can have serious effects
on your home and are just one of the things that should remind you of
your homeowner’s insurance.
Homeowners insurance gives protection to
the physical home from the risks of floods, fire, and other natural
disasters. It is the physical home, the bricks and mortar that if
severely damaged or destroyed can have dire consequences. Do you have
adequate insurance cover?
Bunmi and Bayo Ajala lived in a bungalow
in Lekki Phase II which they bought for N8,000,000 nine years ago. Soon
after they moved into the house, The Ajalas began to undertake major
home improvements and added an extra bedroom, and fully modernised the
kitchen and bathrooms. A few years later they replaced the tiles in the
living and bedroom areas and more recently, replaced the entire roof.
All these enhancements and renovations significantly increased the value
of their home and it was their pride and joy.
One evening as they prepared to retire
for the night there was a sudden power surge, the lights droned loudly
and became very bright, then there was a popping sound and a strong
smell of burning. There were no fire extinguishers in the house, so Bayo
rushed out to get the car extinguishers whilst Bunmi started searching
and calling around for a fire brigade number which wasn’t one that you
could easily recall during an emergency. Bayo and the household staff
tried to fight the fire but it spread so rapidly and they soon had to
abandon their efforts and evacuate the house. The fire brigade arrived
within half an hour, but sadly as they were trying to douse the fire
they ran out of water; before long the house was completely gutted.
Fortunately no one was injured and no life lost.
The market value of the Ajala’s property
had risen steadily over the years and before the disaster it was worth
about N40,000,000. However, they had continued to insure the structure
for its original value, which kept their premiums nice and steady but
this meant that the house was underinsured.
How much would it cost to rebuild your
home if it was severely damaged in a flood or gutted by fire? Can you
afford to rebuild it to its original dimensions and quality? Be
conscious of the fact that the value of your home insurance may have
lagged behind its replacement cost. We all know how the costs of
building materials escalate with inflation each year. If there has been
severe structural damage this could well include demolition costs plus
engineering and other professional fees.
Have there been additions to your house
since the last time you renewed your policy? Perhaps you modernised and
enlarged the kitchen, built another bathroom or an extension? Don’t
ignore any outside improvements; you might have had extensive
landscaping done or a swimming pool added. Whenever you make significant
improvements to your house, inform your insurance company so that cover
may be adjusted to reflect these additional costs. Your premiums will
go up, but at least you won’t find yourself unable to replace your
property in the event of a disaster.
It is important to review your
homeowner’s policy annually as it comes up for renewal. Don’t just get
your office to forward the same premium cheque you have been sending to
your insurance company each year. Assess exactly what you need and then
work with your agent to design the best package for you; you might need
to upgrade the policy to one that covers your most significant risks.
For example, do you live in an area that has begun to flood? If you know
that you face an increased risk of flooding you can opt for additional
coverage for such an eventuality.
Bear in mind that standard homeowner’s
policies may exclude some catastrophic risks. The onus is on you to read
the fine print to see exactly what is included and excluded. The worst
time to find out that you are underinsured is when you have tried to
make a claim and discover that the amount you are covered for cannot
cover the cost of repairs or replacement.
According to a recent US survey, two out
of every three homes are underinsured. I wonder what our statistics
are in Nigeria. The important thing to note is that insurance is a
critical part of your financial life that you cannot afford to ignore.
Make sure that you are one of the few people that actually take the time
to review insurance policies and adjust as necessary. Remember, having
adequate insurance on your home is your responsibility.
-Nimi Akinkugbe (nakinkugbe@punchng.com)
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