Home Insurance, Homebond & More
Buying a new property is of course a major undertaking and not one to be taken lightly given the sums of money involved. Should anything go wrong with the property, you need to ensure that you are as protected financially as is possible.
Do I Need to Buy Home Insurance?
Mortgage providers will insist that the borrower has home insurance in place so not taking out cover isn’t an option for those relying on bank finance. However, even for those lucky enough to be debt free, not having home insurance in place really isn’t an option given the potentially ruinous financial implications of suffering major damage to an uninsured property.
What is Covered by Home Insurance?
The short answer is it depends! As with any insurance policy, it is important to actually read the policy to understand what is and is not covered; this is a little time-consuming and not riveting for sure but it really is crucial to ensure that you are not under the false impression that you are covered for something that in fact, you are not. The policy will specify what risks are covered and for how much and what excesses apply. Below we briefly analyse an actual policy.
Example of Risks that Are Covered:
Covers - operative where specified
- Fire, Explosion, Lightning, Aircraft
- Earthquake
- Riot, civil commotion, strikers, locked out workers, labour disturbances, malicious persons
- Storm or Flood
- Escape of water from any tank apparatus or pipe or escape of oil from any fixed oil fired heating installation
- Water freezing in any tank apparatus pipe or fixed heating installation
- Impact by any road vehicle or animal
- Accidental escape of water from any automatic sprinkler installation
- Theft or attempted theft
- Subsidence, ground heave or landslip
- Any other accident (Accidental Damage) in respect of Buildings only
One could read the above and draw comfort that cover is in place for flood damage. However, as per the terms of the policy below, flood cover is only in place if the property has never been previously flooded, is not in an area that has previously flooded or particularly exposed to flood damage. Likewise, cover is in place for subsidence but only if the property has never shown any signs of subsidence, heave or landslip. Cover for fire is in place but only so long as each floor contains a minimum of a 1kg dry powder fire extinguisher. One can envisage a devastated property owner being left high and dry so to speak by a building that burns down only for the insurer not to accept liability as no fire extinguisher was in place on a given floor. The same applies to frozen burst pipes – this is covered so long as all exposed pipes are “adequately lagged and protected.”
One must be very careful of this “left hand giveth and the right hand taketh away” dynamic that is typical in any policy. The policy holder must ensure that they comply with these terms, in the first instance as they are logical measures to take to mitigate the chances of these risks causing damage, but if they do, to ensure payment is forthcoming from the insurer.
Example of Insurance Company Limiting the Instances in Which Cover Will Apply
The properties to be Insured must meet the following acceptance criteria:
- Is in a good state of repair (including electrical wiring)
- Must comply with all current and relevant housing and fire safety standards/regulations
- Must NOT have been previously flooded, be located in an area which has previously flooded or be particularly exposed to flood damage
- Must NEVER have shown signs of subsidence, heave or landslip (such as internal/external cracks), coastal or riverbank erosion or be located in an area exposed to such damage
- Has NEVER been subject to a survey which mentions settlement or movement of the premises nor has it ever been underpinned
- Is heated only by fixed apparatus (oil, gas, solid fuel, electrical) and excludes the use of portable heaters (with the exception of oil filled electric radiators)
- Is thoroughly inspected on a regular basis by the property owner or a designated experienced agent
- Must not Interconnect with any other property by materials consisting of other than brick/stone or concrete up to attic level
- Is maintained and sealed (including fascia, soffit, roof, windows and doors) to ensure the prevention of weather damage and water/rain ingress
- Has been renovated within the last 30 years including roof repairs, plumbing and electrical upgrades
- All exposed tanks, pipes & apparatus in the attic/ boiler/plant room of the building(s) are adequately lagged and protected
- Where the property includes multiple residential units (unless the building Is fully unoccupied):
1. Each floor level MUST be equipped with an integrated fire alarm system or battery/mains operated smoke/heat detectors
2. Each main floor landing MUST contain a minimum of a 1kg dry powder fire extinguisher - Each individual unit:
1. Must be let in a single tenancy agreement or licence agreement, of not less than 6 months duration, between the landlord and the tenant or the local authority (where applicable)
2. Must be equipped by and connected to an integrated fire alarm system or have battery/mains operated heat/smoke detectors
3. Must contain either a 1kg dry powder fire extinguisher or a fire blanket (which must be installed adjacent to cooking facilities where they exist within the unit)
Once cover is in place and the insurer is accepting liability, the next area covered in the policy is how much liability are they accepting and what excesses apply. Insurance companies will always limit their liability so again it is crucial to make sure that you are not under-insured.
One area to pay close attention to here is the reinstatement value ie the cost to rebuild the property should it be destroyed. Remember that if the property is destroyed, you still have the land so insuring a property for its full market value (land plus property value) will mean that the building is over-insured as you are insuring the value of the land which cannot be destroyed. So be sure to only insure a generous estimate of the reinstatement costs and not the property’s full market value. However, remember that building costs tend to rise year after year. While many insurers will automatically index up the reinstatement cost by building cost inflation each year, some may not. If you leave this run unattended for a number of years, you could find yourself substantially underinsured ie the limit of the reinstatement cost insured would not actually cover the cost of rebuilding the property. If one had a choice, being over-insured beats being under-insured but the goal should be to right-size your cover to the amount of your liability ie if it will cost approximately €330,000 to rebuild the property, having cover of €350,000 is comfortable. Having cover is €500,000 is wasteful. To get an estimate of your property’s reinstatement cost, see this helpful tool: Chartered Surveyors of Ireland Home Rebuilding Calculator
How Can I Get the Best Value Home Insurance?
This can actually be a little tricky as it’s hard to compare apples to apples. For example, a policy may have a very attractive from a premium point of view but when you analyse it, risks actually covered might be quite limited and excesses can be quite high. So make sure to look beyond the premium to see what risks are covered and for how much.
I Live in an Apartment – Do I Still Need Home Insurance?
An apartment, by its nature, is a subset of an overall building. It’s not possible therefore for any individual apartment owner to have home insurance in the traditional sense. However, the owners’ management company of the development will take out overall building insurance on behalf of the owners. The annual management fees paid by the owners of the individual units covers the cost of this insurance. In addition to this, multi-unit-developments will maintain a sinking fund. This is a sinking fund, built up over the years to cover expenses that the insurance company will not. So if a severe storm damages the roof of the development, the insurance company will typically cover that, but if the internal stairs needs to be fully refloored after many years of wear and tear, the management company will typically dip into their sinking fund for this as insurance won’t cover wear and tear.
While an individual apartment owner can typically rely on his/her annual management company fee to cover the insurance of the building, this sum will not cover the contents of the apartment. For example, if someone were to break in and steal valuable items within the apartment, building insurance will not be of any help. Separate contents insurance would need to be taken out by the apartment owner or tenant to ensure they are covered for contents loss.
I am Buying a New Property that has a Homebond Policy – Do I Still Need Home Insurance?
Homebond is an insurance policy sold with new properties. The buyer doesn’t have a choice as the builder has made this decision and build the price of the policy into the price of the property. Developers / estate agents for new developments are often quick to point to the existence of Homebond Insurance as a reassuring feature of the development. However, as with any insurance policy, the devil is often in the detail. For example, for the owners of properties that were subsequently found to have serious problems owing to the use of pyrite in their construction, Homebond did not cover these people, leaving many in extremely difficult situations for many years.
For an overview as to what is included in a Homebond policy, see here https://www.homebond.ie/home_buyers/ So it does cover major structural issues that may emerge but for example would not cover contents, flood or fire damage and many other risks to which a property owner is exposed. So while the existence of a Homebond policy might be of some comfort when buying a new property, it is certainly not a substitute for home insurance.