WHEN you’re insuring property a building is so much more than just the walls and roof. And if you fail to include other items you leave yourself open to disappointment when your insurance company pays out after a claim.

“Most people that insure their properties don’t know this but the definition of ‘building’ in insurance doesn’t just stop at the building. It means your [perimeter] walls, your gates, paved areas, water tanks; you can even include pool pumps — and that can make a very big difference,” said Rory Thwaites who has more than 13 years of experience as a broker, mostly for high-net worth clients.

Since March 2022 he’s been the marketing manager at Thwaites Finson Sharp Insurance Brokers Limited.

He cited the example of a client on Jamaica’s north coast who did a great job of insuring her house but forgot to factor in the wall she had erected to keep her and her valuables safe. He had to fight for an increase in the payout she eventually received after a fire.

“She had a concrete wall that went all around the house, and that’s the primary thing that made her not able to get back the full amount and get hit by the average clause,” he said.

Claims are assessed based on the overall value of a property. If the sum insured is less than 85 per cent of the overall value at the time of the loss, the insurance company applies the average clause rule. That’s why it’s unwise to undervalue your asset, even though it means lower premiums.

“Let’s say that you have a $10-million house and you insure it for $5 million; that means you’re insured for 50 per cent [of its value, well below the 85 per cent required]. If you have a loss, you’re only going to get back 50 per cent of the loss. And then they’re going to take the excess out of that, which is the deductible,” said Thwaites.

“So if there is a $100,000 loss, you’re going to get $50,000 back from the insurance company; and let’s say you had a two per cent deductible, they’re going to take two per cent out of the $50,000 after that. Most people don’t know that. They think that if you just insure your house for $20 million then you’re [going to get paid a claim of] $20 million. But if the house is worth $50 million, then you’re not going to get back the full claim amount if you have a claim,” he added.

It is best, he said, to have your property assessed by a professional valuator or someone with industry knowledge to ensure that you are placing the right price tag on your asset. That reduces the chances of falling below the 85 per cent threshold and being at the mercy of the insurance company.

“Insurance companies are a business, just like everybody else. They have to make reports to their shareholders and they have targets that they have to make. Their biggest expenditure is claims so they try and find every means possible to reduce that expenditure,” Thwaites noted. “They [can legitimately] use the policy wording and say, ‘Look, you’re not insured for 85 per cent of the value.’ “

The importance of properly assessing the value of property takes on added significance in Jamaica where it is quite common for houses to be expanded as families grow. Thwaites stressed that if the addition is substantial, you should notify your insurer and adjust the value of your sum insured. The good news is that there are some occasions when your addition is covered without any extra steps or cost.

“[When doing the policy] I will put on an extension called miscellaneous which will cover that. A miscellaneous on a building is usually about 10 per cent of the sum insured, meaning that they give you 10 per cent of whatever sum insured you have for that item [for example if you add on something small at the back]. If that gets destroyed they’ll just kind of tack that on, give you a 10 per cent value for that without charging you for it,” said Thwaites.

The key, he stressed, is to know what your insurance covers and what is required of you to maximise any claims that arise.

And, of course, he advises property owners to get a broker who can translate insurance documents into everyday English.

“The best way I can describe it is like you’re going to court without a lawyer. You’re purchasing a product that, unless you have studied it and work in it, you’re not going to really understand. So when the time comes that you need to use it, nine times out of 10 you’re going to be disappointed — but if you have a broker, they will be able to instruct you beforehand,” said Thwaites.