Home Insurance Premiums & Insured Items Vary Substantially – Buildings over 40 Years May Need Separate Underwriting

16 April 2018
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 Home Insurance Premiums & Insured Items Vary Substantially –  Buildings over 40 Years May Need Separate Underwriting

A dream home, owned or rented, is the common goal of many a hardworking family breadwinner. To put their heart at ease, more people have turned to home insurance for protection but often with little regard to the terms and conditions, and scope of coverage of an insurance policy.  The Consumer Council has compared 22 household insurance schemes and found vast variations among premiums, insured amounts, insured items and extended protection or what is commonly known as “excess” amount (to be borne by the insured upon claims).   The survey showed that premiums for the same flat could vary in different schemes by nearly twofold.  Even with the same premium charges, the insured amount for different items also varied by more than a double.  The differentials in “excess” were even more significant and in particular when applied to legal liability claims – a whopping variation of up to 39 times.  Consumers should compare with due care to avoid choosing an unsuitable home insurance scheme.

According to the Rating and Valuation Department, over 30% of Hong Kong’s 1.16 million private residential units, or some 370,000 flats, are more than 40 years old by the end of 2016. In comparing the 22 insurance schemes, 45% (10) of the schemes set 40 years as the upper limit for the age of building of the insured unit. And projecting from the figures, for every 3 or 4 units insured, one will have to be individually underwritten.   But even if approved, additional terms and conditions may be attached or the premiums, the cover, and compensation etc. may differ from the standard insurance policies.  In addition, 7 other schemes set their upper limit on building age from 25 to 55 years.    

Consumers are advised to evaluate their asset value carefully and choose only the insurance policies that suit them most to avoid unnecessary claims disputes in future. And do not focus on just the premium charges otherwise they run the risk of paying for insurance protection that’s of little or no use to them. 

The Council has written to 22 insurance companies of which 13 responded offering information on a total of 22 insurance schemes for comparison.  All-risk inclusive household contents protection forms the core of home insurance schemes but different insurance schemes have their own definition on household contents, uninsured incidents or items.  The schemes also varied widely in their insured amounts ranging from $200,000 to $3 million. Furthermore, depending on the types of contents, maximum compensation limit per item will be set. Take general household contents as an example, the limit ranging from $5,000 to $300,000 per item.   If you have items of high value in the home, choose a scheme that offers a higher compensation limit commensurate with their value.

Another core part of home insurance concerns extended/supplemental cover.   For instance, most schemes included claims on home contents loss due to interior renovation works while some schemes provided protection also with moving home, temporary storage, alternative accommodation or rental subsidies.  Variation was found among the schemes in extended insurance cover and amounts, for example, the insured amount for alternative accommodation was within a range from $15,000 to $300,000 per policy year.

15 schemes also provided protection on personal effects and cash loss in which 12 have worldwide cover; the protection limit on personal effects loss was set between $2,500 and $300,000 per policy year, the majority ranging from $10,000 to $20,000 per policy year.   In addition, 20 schemes included third-party legal liability cover and take the legal liabilities arising out as landlords or occupiers as examples, protection ranging from $2 million to $15 million.

Further, some schemes included also such special insurance cover as accidental death or theft of pedigree dogs, credit card outstanding balance protection, malicious damage by tenant, school closure allowance, and loss of valuables in bank vault.  Consumers will do well to consider if they really need such protection and the details in the choice of insurance. 

In calculating the insurance premiums, 20 schemes were all based on the size of the unit and 2 schemes on whether the property to be insured is a low rise house.  7 units of different housing types, sizes and ages were simulated as examples in the survey, for computing the premium charges and the findings varied significantly in both premiums and scope of protection.  No significant difference on premiums was found between public housing and private residential flats.

Take the case of a unit with saleable floor area (321sq ft) and gross floor area (440 sq ft) in a building of 4 years, for example, 13 of the home insurance schemes offered $1 million insured amount for household contents at annual premiums from $500 to $1,480, a difference of nearly twofold.  Besides premiums, variations were found also in the insurance cover and the insured sums.  For instance, in respect of personal accident protection and legal liability protection, the former ($500) plan offers insured amounts respectively of only $100,000 and $5 million, much less than the latter more expensive plan ($1,480) that offers $400,000 and $10 million by threefold and a double respectively.

Even with similar premium charges, their insurance cover and insured amount for individual items also varied significantly.  For example, in the case of a unit of saleable floor area (470 sq ft) and gross floor area (627 sq ft) in a building of 12 years, 2 of the schemes’ annual premiums varied by only $2 ($1,428 and $1,430), while the slightly more expensive plan ($1,430) while it did not cover the more common damage during interior improvement works, it offered protection for property loss or damage for domestic helpers, and relatively rare home quarantine cash benefits and tenant’s liability protection.

 Besides variations in insured amount and cover, almost all schemes will apply “excess” in household contents protection, for instance, loss and damage caused by water flooding, water pipe burst and rain water seepage, etc.  In the case of an insurance policy of a unit in a building of 25 years or below, with an insured amount of $1 million for household contents, for example, the “excess” could range from $250 to $3,000, a variation of 11 times.  The “excess” for legal liability protection was even more substantial, from $250 to $10,000, a difference of 39 times.

Some consumers may not be able to clearly differentiate between home insurance and building insurance.  The former only protects your household contents; damages to the structural parts of the building such as walls and ceiling, external walls or plumbing and the subsequent loss or expenses incurred are generally not covered in home insurance.  The relevant protection comes under building insurance. 

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