Role of home insurance in building, protecting generational wealthSunday, August 01, 2021
For most, buying a home is the biggest purchase of a lifetime and a significant asset, but having a homeowner's policy is an important financial planning tool, especially if you're looking to pass along significant wealth to the next generation.
According to Chris Hind, the general manager at JN General Insurance, home insurance is a necessity that will provide peace of mind, especially in the Caribbean region which suffers a high level of disaster risks.
“The only alternative to home insurance if you want to protect that asset against loss is your own very deep pockets. We live in a beautiful region, but a region that is high risk. You don't want to learn the value of home insurance immediately after an event,” Hind opined.
“Do not work so hard to acquire that wealth and valuable assets that you want to pass on to the next generation and then leave them at risk and not protect them. The role of general insurance in this is the protection of generational wealth so that it can be developed and passed on,” he continued.
Hind was speaking at JN Group's financial webinar under the theme 'Building and Protecting Generational Wealth' held last week.
He indicated that home insurance, as with all general insurance, is a way to transfer the risk of a devastating loss to the insurance company and to avoid using personal savings to recover.
A homeowners policy generally provides coverage for residential properties in the event of damage to the building and/or contents caused by perils insured by the policy.
He noted that the benefit of having home insurance far outweighs the risks.
“Currently to insure your home will probably cost you about half a percentage point of its replacement value each year. In order to save enough money to rebuild your home, you would have to save the amount of the premium without suffering a loss for 200 years. So that will be truly generational because none of us would be able to do that ourselves,” Hind contended.
He, however, pointed out that many homeowners make the mistake of not properly insuring properties.
“You should not be insuring your property only for the amount of [an] outstanding [loan/mortgage], you should be insuring the property for the replacement value, which is in simple terms how much it would cost to rebuild,” Hind advised.
He said that each year the home and valuable contents should be appraised for appreciation or depreciation.
In the case of particular valuables such as art collections and jewellries, Hind indicated that while they're not necessarily insured just because one has a homeowner's policy, they can be insured under an add-on policy which allows for an increase to the personal property coverage limit.
“Many people when they have been obliged to insure their homes and they then pay off their mortgages after many years, breathe a huge sigh of relief because they finally own all of the equity… But that's the point when you must continue to insure your home. Now the asset is completely yours, so why would you expose it to unfortunate or accidental loss?” he said.
Hind added, “At that point we do understand that maybe you're also coming to the end of your working career so income may be reduced, I say talk to your insurance company or bank, because there are ways through premium financing or payment plans that will ease the burden of a large annual premium”.
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