A GUIDE TO PROPERTY INSURANCE WITH ADETOLA ADEGBAYI
What is Property Insurance?
Property insurance is any type of insurance you buy to protect physical assets you have acquired; your home, motor car, etc. Also, you can cover your office buildings, factories or different places of work so far they are physical. Once you cover them as your property, that’s essentially property insurance.
What is the Importance of Property Insurance?
Well, if a person has spent money to acquire assets, they need to first of all ask themselves several questions. If anything happens to those assets, will they be able to replace them without having to deplete their savings, without having to borrow or without having to affect other lifestyles? The importance of property insurance is like you are buying money for a contingency that may not happen. Should that event happen, it could be fire, it could be flood, it could be an accident; you can call on that insurance policy to pay without having to look for money to pay for it by yourself.
Who should Buy Property Insurance?
Actually, the owner of the asset should buy property insurance. If you have a portion of land and you have nothing on it, you can’t really insure the bare land, but if you have a piece of land that is built, then you need to buy property insurance. Assuming you developed a property (either blocks or flat, terraces or duplexes) and you let it out, individuals renting should also buy property insurance. If something happens to the property as a result of your tenant doing certain things like cooking and causing fire, such individual can be held responsible.
So, tenants should also buy protection against destruction of the property. Again, that’s not called property insurance, it is called liability insurance but it relates to the property. The owner of the assets can buy a direct property insurance; the tenant renting the asset will buy indirect insurance which is in form of liability insurance.
Classification of Property Insurance and What Each Entails
When you talk about classification, you have motor insurance as a form of property insurance and you also have home insurance as a form of property insurance. There is something called industrial or risk insurance which covers materials damaged in the property or the factory as well. Any physical asset that you own can be classified under property insurance. However, since the focus is on home asset, there is home insurance. So broadly, I will say you can classify home insurance into two:
- Homeowner/householder comprehensive insurance
- Basic fire and burglary insurance
Apart from the owner of a property, a tenant can get a homeowner/householder comprehensive insurance to cover properties inside a building to avoid the possibility of being held responsible for damage through the building. So, the content of a home can also be insured.
Fire and burglary insurance is to protect your property against named risks. Now, burglary is not the same as theft. Burglary is something that requires forceful entry so a person must break into the home. If there is no breaking into the home and the person easily gains access and steals things, then that’s not covered under fire and burglary. That is covered under homeowner/householder comprehensive insurance. We at Leadway have a lifestyle product called ‘Lhappy.’ It is a packaged product that also covers your properties and the content in it including your car and persons within the home.
What are the Processes Involved in Property Insurance?
If you want to cover your asset, you will look for an insurer who will send you a proposal form. The proposal form will be filled stating the risk details such as how your home is constructed, what kind of construction it is (blocks or bricks), how your home is covered (the kind of roof you have) and what kind of frame it has since there are now prefabricated homes in Nigeria. Then, you have to tell the value of your property. When valuing your property, the cost of the land should not be included because you can’t really lose a piece of land. You insure the cost of rebuilding the property on that land. You must ensure that your property insurance covers the cost of removing debris also. You may have to break the house down, remove the debris and rebuild, so you have to look into all these. You should know what it is going to cost you to rebuild the burnt property or the destroyed property and you place an insurance value on that.
When the above have been done, the insurer will check if there are risk management measures in place. For example, if you are living in a 2-storey townhouse, do you have fire extinguishers? What kind of fire extinguishers do you have? Or are you living close to a fire station? Well, if you are not living close to a fire station, how quickly will firemen appear in your home if there’s a fire? So, all those risk management issues are taken into consideration. In some cases, if your value is very high, they might come to view your home. If the insurer notices that you don’t maintain where you keep your generator properly and you have people who are smoking around it, or you have petrol in the tank which is not properly kept, the insurer will say the risk is high and that may affect your figure. So apparently, the insurer checks your physical asset, the nature of it, the structure, the value, how you behave within the property, what things you have to protect against fire as well as your risk behaviour and risk attitude.
What is the Difference Between Residential and Commercial Property Insurance?
For residential, you live inside it but for commercial, you do not live inside it. Although, some properties that are mixed residential and mixed commercial are beginning to show up in Lagos now, as you will see some buildings built for multi uses. If you have a property that is mixed use, an insurer needs to know how many floors or spaces within the complex are being used for commercial purposes. Not only that, but also the types of business being done there. Well, as insurers we classify this under 3 groups: residential property, commercial property and industrial property (factories). If they do business involving the use of flame, a restaurant for example, and then people are living at the top, the risk of that complex is higher because you can have domestic gas explosion. So we’ll allocate a premium for the commercial operations. Here, the commercial property rate will then be higher than the pure residential rate.
What are the Items Typically Excluded from Property Insurance Policy?
When we talk about exclusions, it depends on the type of property you are covering. When you buy householder/ homeowner comprehensive insurance, theft is covered but when you buy fire and burglary insurance, theft will not be covered. We call it ‘larceny’ meaning ordinary theft. When you are buying home insurance for example, we will not cover your content, you have to insure your content separately but under householder/homeowner comprehensive insurance, it will be covered. Also, we do not cover property in the nature of money. If you keep money in the building like coins, cash, bills of exchange and other stuffs, we will not cover those.
We’ll not cover injuries to persons within the home unless you specifically cover them for injury. Now, under our LHappy policy, we have a minimum cover that we give for injury. For homeowner/householder comprehensive insurance, we may have minimum cover for medical expenses should there be an injury. Ordinarily, we do not cover risks that we consider acts of God. If there’s an earthquake or tornado for example, we will not cover it. We will not cover flood as well, but you can say you want your policy to cover flood. If you live in a place that is on water or a flood zone, we will not cover it because we know that such accident is bound to happen. We only cover things that have risk of occurrence, but may not happen. For example, if you go build your house right next to a river bank and you tell us you want to cover for flood, your premium will be equal to the value of your property because it is going to happen and it’s just a question of time. These generic exclusions do not mean you cannot cover them but you just have to let the insurer know that you want them to cover what has been excluded, so you can find out the premium.
For our risk management conditions, we believe you should behave in a certain way. If you don’t behave in those ways, and something happens to you property, it’s difficult for an insurer. Don’t build your property next to the river bank and expect the insurance company to cover it for flood. One of the benefits of insurance is, it helps to modify people’s behaviour. So, insurance is not about, ‘I want to behave anyhow,’ you have to modify your behaviour. We are there to say, despite everything that you have done, these things still happened, so we pay you the money that you need to recover.
How Educated are Nigerians towards Property Insurance?
When people think of insurance, they think of it as loss. People don’t like to hear loss, they say, ‘God forbid’ because loss is a very difficult language to speak to people. A lot of people don’t understand that insurance is like buying money. We make them see it like it is part of how they protect their riches and how they protect what they used their life to put together. Really, we do a lot to educate the general public as we are in the newspapers and radio talking about insurance value. We participate in conferences like AFRECA to talk about insurance value as well.
Featured in Prestige Magazine Issue 3. Vol. 4 2019
