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Elizabeth Horscroft

Hong Kong homeowners often overlook taking out insurance policies and, as spring approaches and with it rain, flooding is a major consideration and should be insured against.
You could be protected from a potential financial disaster with home insurance, but there are many variables.
'A home is usually the largest single investment any person will undertake,' said Anna Chan,  head of personal lines,  American International Underwriters (AIU),  General Insurance operations of AIG in Hong Kong.
'Home insurance can protect against hazards that may threaten our financial investment.'
According to Jennifer Scally,  regional manager,  AXA Art Asia, a division of AXA General Insurance Hong Kong,  about 80 per cent of Hong Kong's population does not buy home owner's insurance.
'[Losing] a handbag is not a big deal, but if the house collapses your insurance company pays your whole bill. That would be very helpful for each individual,' Ms Scally said.
Having the whole bill paid depends on the value you have insured your property for. And, importantly, people often forget to update their insurance to reflect the replacement value of their home. They end up being underinsured, with a shortfall between the maximum potential payout and the actual value of the contents of their home.
Updates should be done every year, when the policy is up for renewal, or when new items are bought for the home.
Ms Scally said a sofa bought 10 years ago could cost a lot more to replace now because the market value could have risen. So that must be reflected in an updated policy.
'In general, we suggest a 5 per cent increase on renewal,' she said.
Being underinsured could be avoided by taking out a policy calculated on replacement costs, she said. This is called new-for-old full-replacement cost.
If protecting your financial future with home insurance sounds like a good idea, rest assured that finding a broker to help you  get cover is easy. There are more than 500 insurance brokers in Hong Kong vying for business.
Although most people find their brokers through word of mouth, experts advise you to shop around. A good place to start are the websites of the government's Office of the Commissioner of Insurance, or the Hong Kong Federation of Insurers, which provide lists of insurance companies and the products they offer. Choose an agent that is a designated Confederation of Insurance Broker or a member of the Professional Insurance Broker Association.
Ms Chan said: 'The reputation of the insurer is important. This is particularly relevant if the type of coverage you need goes beyond the geographical coverage of Hong Kong.'
Having selected an insurer you need to determine the best policy for your needs. The minimum coverage experts recommend is 'all risk' for loss due to fire, theft, typhoons, flooding, water damage, landslides and accidental damage.
Ms Scally said home owners also needed to insure the building as well as the contents.
The cost for home insurance is similar among the big firms. But there are caveats and add-ons that can be confusing and frightening if you are not familiar with the industry. Here are a few hints to help you wade through the quagmire.
First, the premium, or annual price, of most insurance plans varies according to the floor size of the insured home, coverage limit and scope of cover. Ms Chan said: 'In general, the larger the floor size the higher the coverage limit. And the wider the scope of cover, the higher the premium.'
She said that standard home content insurance products usually had a preset coverage and limit, which varied from company to company. Some covered a minimum of HK$750,000 to HK$1 million while others ranged up to a maximum HK$2.5 million.
For reference, at AXA the basic annual premium with no add-ons for flats of or less than 500 sqft is HK$540, while the premium goes up incrementally for larger flats. The premium for a house between 1,201 and 3,000 sqft is HK$4,500.
The location and condition of the insured premises could affect the insurance premium, Ms Chan said. She encouraged consumers to seek an insurance plan that meets their individual needs instead of considering the price alone.
Unfortunately, minimums are not always enough. Under certain circumstances you may need additional coverage beyond that provided in a standard home owner's insurance policy.
Ms Chan emphasised that more insurance would be needed if the market value of a home's contents or valuables exceeded the pre-set limit available from the standard insurance plan.
Also, frequent travellers may want to consider a worldwide extension cover for valuable items.
This point is important because basic property insurance does not cover losses outside the home beyond a certain specified limit, which varies between companies. When you are abroad and lose your designer handbag and the random jewellery left in the zipper pocket, it is nice to know that it will be covered by your insurance.
To  ensure full worldwide coverage of all your valuables - jewellery, watches, handbags and computers - you need to add an itemised rider to your basic policy. In general the premium is 1.5 per cent of the total value.
According to insurance agents, certain people with multiple expensive valuables require a specialist home insurance product created for high-net-worth individuals. This topic will be covered next week.
The third additional coverage to consider is third party legal liability cover.
'This is worldwide cover against personal liability in respect of accidental bodily injury and property damage to the third party against you or your family members negligence,' Ms Chan said.
Other insurance protection that could keep you out of court, especially important for property owners, is liability insurance for common areas. Ms Scally said this was usually included in the basic policy but not always, so it was advisable to check.
She recounted the story of the 1994 Albert House debacle. An illegally-constructed fish tank erected on a canopy of an upper floor restaurant in the residential building collapsed while it was in the process of being demolished. One passer-by was killed and 13 others injured. The court awarded the victims HK$33 million. And, when the restaurant operator, the construction company, and the property management company either went out of business or bankrupt, the liability fell on the 130 owners.
'From then on we noticed a lot of unit owners did not have this coverage for liability for common areas,' Ms Scally said.
'Particularly, the building owner [should have it]. You must, otherwise it is a big exposure. The case set a precedent - in common areas the owner pays liability.'
Even when the building management buys insurance for common areas it may not be enough. It will still come back to the unit owner. Ms Scally cautioned that most big insurance companies included public area liability, but smaller ones might not. So be sure to check your policy.
Before you buy a new apartment bear in mind three factors that insurance companies use to calculate premiums. This may save you money in the long run.
First is the age of building. Ms Scally said, generally if the building was 30 years or older, the insurer might impose special terms and conditions due to a higher possibility of water damage. If not a higher premium, then it would be a higher deductible, usually HK$5,000 or 10 per cent of the loss.
Second, is the type of building construction. Ms Chan said: 'Residential buildings constructed of concrete with concrete roofs are preferred by insurers.'
Third, consider the type of dwelling. 'Apartments in well-managed residential complexes will receive more favourable rates and terms than individual houses or village houses,' Ms Chan said.
Home insurance policies normally last one year and if you are not happy you can change insurers any time. Just write to the agent and state that you want to cancel and from which day and the premium will be refunded to you.
But the agent will charge you a 'short-term premium' and it is not calculated pro rata. Ms Scally said: 'Say after one month you cancel, the agent charges you 10 per cent of the premium. After two months - 20 per cent, three months - 30 per cent and so on.'
So, either pay a small price for peace of mind or wait until the next burst water pipe or heavy rain.
Considerations for new home insurance policy
The reputation and financial standing of the insurer
Whether the insurance policy undertaken is sufficient to meet individual coverage needs
Whether there is any deductible amount
Whether there is any policy exclusion which is important to you
Policy premium should be considered in reference to coverage extent and its relevance
Definitions
Insured: The policyholder(s) protection in case of a loss or claim
Insurer: The insurance company
Policy: The written contract of insurance
Rider: Also called an endorsement. An amendment to the policy used to add or delete coverage
Deductible: The amount of the loss which the insured is responsible to pay before benefits from the insurance company are payable. A higher deductible will lower your premium
Replacement value or new for old: The full cost to repair or replace the damaged property with no deduction for depreciation, subject to policy limits and contract provisions



Home cover solves a flood of problems