Every year the UAE finds itself welcoming newly built apartment complexes and spacious villas to house the growing number of expatriates. While there is a big appetite for property ownership, and with the recent announcement that allows longer-term UAE visas, there is still a gap in awareness about the importance of insurance cover. There are three main components of property insurance that buyers should consider: the building, contents and personal belongings. The type of insurance needed depends on the planned use of the property.
Building insurance is usually a prerequisite for any mortgage. It covers the permanent structure of a home that is made of brick or concrete and roofed with incombustible material against accidental damage, fire, natural perils and water damages like leakage. The definition of building can also include a garage or swimming pool, which extends the building cover to these areas. A specific liability cover for property owners is the “owner’s liability” benefit, which covers the building owner for any accidental injury to a third-party person or damage to a neighbouring property.
The value of the building required, also known as “sum insured”, is not the original purchase price or current market value of the building, but rather the cost to rebuild in the event that the property is damaged. For example, if an apartment or villa was wiped out in a fire, resulting in a total loss, the amount a policyholder would be covered for is the sum insured (rebuilding value) of the building, minus the policy excess. In contrast to the price paid for to buy the property, building insurance premiums are affordable and range from 0.02 per cent to 0.07 per cent of the sum insured of the property.
For residential investment properties, where the homeowner will not live in the property, building insurance provides the same cover, but excludes damages caused by a tenant. Landlords can require tenants to take out a home insurance, which includes a “tenant’s liability” cover. If a homeowner is planning to live in the property, we highly encourage owners to insure their contents and personal belongings as well for a complete coverage.
If the property is commercial, owners will need to purchase Property All Risks Insurance for Commercial Properties. Owners will only need to insure the “building” if they are renting out the property, otherwise they should insure all their contents.
Contents insurance covers household items against accidental damage, fire, natural perils and theft when inside the home. This can include, but is not limited to, furniture, kitchen appliances, interior decorations and home electronics. Personal belongings do also fall under contents but are limited to coverage within the home. The sum insured should be the total current value of all the items owned inside the home, i.e. the cost to replace the contents if they were all completely lost in a fire.
If planning to live in the property or rent it out as a furnished unit, purchase contents insurance. If renting out your property as a furnished unit, there are certain exceptions for contents coverage in a rented unit, hence it is best to check with the insurer.
Personal belongings is an optional cover typically for personal items that a person carries frequently when outside of the home. This can include, but again is not limited to, watches, jewellery, laptops, mobile phones or clothes. Most insurers extend coverage outside of the home (worldwide) for up to 90 days, which makes this extension a great additional benefit to frequent travellers who carry expensive personal items.
The sum insured should also be based on the total current value, i.e. cost of replacing all items. For items that appreciate, such as jewellery, it is highly recommended to have these valued on a yearly basis. After all, its value might have increased since the time of initial purchase. When compared to the premium of buildings or contents, it would be the personal belongings cover which often increases the total premium — especially when the personal belongings’ total value exceeds your contents’ total value.
It’s been analysed that damage or loss of personal belongings accounted for over half (58 per cent) of home insurance claims in 2018. For InsuranceMarket.ae customers, over four-fifths (83 per cent) of claims made against personal belongings were for loss or damage to portal electronic devices, primarily mobile phones, with jewellery accounting for the remaining 17 per cent of claims.
There are additional insurance benefits when purchasing home insurance. For example, Loss of Rent or Alternate Accommodation Insurance provides cover to landlords in case of damage to the property that makes it unfit to live in. For owners who live in the property, this covers expenses for an alternative accommodation. Loss of rent only applies to owners who have rented out their property and covers the rent income they should have received.
After the initial year of purchase, policyholders should review their coverage prior to renewal and assess if they are still adequately insured. An outdated value can expose you to risks. If you aren’t confident about your coverage, haven’t found the right policy or are interested in the additional benefits not widely marketed, be sure to approach an experienced insurance advisor.
Avinash Babur is CEO of InsuranceMarket.ae. The views expressed here are his own.