When it comes to making an investment as life changing as the purchase of a house, having home insurance seems indispensable. However, each house has its own characteristics and depending on whether you’re the owner or a tenant, whether the property is used as a habitual residence or second home or is rented to third parties, and other such elements, you’ll have to get one kind of home insurance or another. The most important thing is to ensure that the insurance protects your property from the unthinkable.
Carlos Lluch, insurance broker and president of the Independent Coordinator of Insurance Broker Associations (Coordinadora Independiente de Asociaciones y Corredores y Corredurías de Seguros or CIAC), will serve as our guide through this complex world of insurance. "The insurance is not the same for a single-family house or if we’re talking about a group of houses. In that case, we can see the coexistence of our home insurance with buildings without having to duplicate the coverage," he explains.
What do we talk about when we talk about home insurance?
In Spain there are about six million uninsured homes. Usually, Spanish insurance companies sell the insurance for a year, but then when you finance it they apply a surcharge for payment in instalments. You have to be careful with that because it could involve up to 80% or 90% interest.
What are the main risks present in the home?
The greatest hazards in the household are those that can damage your pockets, destabilise your personal economy and endanger the security of your family. This includes house fires, gas explosions and issues that carry civil liability at the same time.
Problems such as theft could happen fairly frequently, as could windows being broken or water damage, but these usually have a minor impact on a family's finances.
The advantage of home insurance is that it provides a solution to different types of claims. Some may be really intense and unlikely to happen, and others more frequent although they are not as serious.
What types of home insurance are currently available?
Basically, there are two types of home insurance contracts. One is multi-risk, where the insurance companies tell us exactly what they will cover with a list of possible situations or accidental events. Anything that is not on this list will be excluded.
The other format is fully comprehensive insurance, wherein multi-risk issues would still be covered, but also other situations that have not been expressly excluded in the insurer’s contract. The cost is understandably higher for this type of contract. The classic nuclear family of four people living in a flat of 90 square metres, or 1000 square feet, could be looking at between 200 and 300 euro a year to achieve significant coverage with that type of insurance.
Is there any insurance that covers all the risks existing in a home?
This sector of the insurance market is mainly for large estates which spend upwards of 3,000 euro a year to have greater cover than usual.
How can you make sure you’ve got a solid home insurance contract?
For this, it is essential that the list of events covered by the insurance are adequate and appropriate for the specific needs of the client, their lifestyle, etc.
The figure of the insurance broker is an issue between the insurer and the consumer. They are usually professionals who know the insurance world and its products inside out. They know how insurance companies work and which ones are suitable for each specific client.
What things have to be considered when underwriting homeowner's insurance?
There are many factors to take into account. A first-floor apartment or a studio are more expensive than a flat on a mid-level floor in terms of insurance. The risk of burglary is greater in these types of properties.
Another important part is the surface area. The constructed surface area of the property must be declared in the insurance contract in metres squared, including the common areas, storeroom and parking space if there is one.
At the same time, the date of construction of the house is key, as is the last time it was renovated, especially at the level of modifications to the water pump system, electrical installations and heating. Such occasional improvement works to your house are fundamental to avoid any type of unpleasant surprise.
If the house is second hand and the facilities are very old, it’s possible that the insurance company won’t help you much in your claim. Check that you’re contracting insurance that gives you the right to the corresponding compensation before paying for a guarantee that won’t cover the things you need.
What other issues need to be considered?
The postcode where you live is important. The accessibility of the area, plus how close it is to fire stations or police stations, may also be taken into account when getting a home insurance valuation. Sometimes even the level of conflict in the neighbourhood is measured and there are insurers who prefer not to insure in certain postal codes.
In the end it is a question of knowing very well what exclusions have been made in your home insurance, especially if and when you come to give a report for some incident that happens in your property.
In this way, the expectations of the insurance will correspond to what has really been taken out and there will be few surprises. Some insurers limit coverage for fire or water damage to a certain maximum threshold. Make sure you know these things before signing the insurance contract. Don’t sign on the line just because of commitments or pressure from your bank without knowing beforehand exactly what the insurance entails and check what best suits your interests.
What type of insurance is recommended for a rented house?
Keep in mind that there are assets in such a property that are not owned by the landlord. The weight of civil responsibility shifts from the owner that you are renting from to the tenant.
If you rent a room, standard home insurance will probably not cover you because they don’t really consider such situations. In the same way, it’s not worth paying the insurance premiums on the house if you go and live in someone else’s house every weekend. These are situations that are not contemplated in traditional home insurance.
What insurance does a homeowner need?
We have to differentiate between several options. If you’re building a house, you are classed as a developer. If a developer wants to sell the house within the next ten years, they should take out a ten-year insurance policy.
In this case you are also recommended to take out civil liability insurance in that phase of construction. These insurances end when the house is built. The ten-year period begins as soon as the record of receipt of the property is released.
If we do this work in partnership with other people, in a cooperative, or in any format in which the structure is shared, we continue to be promoters although in this case we are co-promoters. In such cases, it is obligatory to take out 10-year insurance. The premiums for this insurance are paid before entering into coverage, 30% at the time of taking it out and the remaining 70% when the work has been completed. The insurer delivers a certificate which is legally signed before a notary to register the insurance in the Land Registry.
It actually represents a percentage of the value of the building. For a house of 300,000 euro, the insurance might come to over 2,500 euro approximately, but it covers any existing problem of structural origin or ground instability for ten years. In any purchase that is made of the house, this ten-year insurance is required.
What’s the best type of insurance with regards to buying an off-plan home?
Buying a property off plan, before the construction work is finished, is classified as a work in progress and you’re not obliged to take out any insurance. The developer of this property, on the other hand, is required by law to take out guarantee insurance for anticipated amounts. If they receive 12,000 euro for each reservation of an apartment in the development, they must give a surety bond for that amount as if it were a guarantee.
According to Spanish Law 57/1968 which regulates this obligation, the aim of this initiative is that the money contributed only goes to the work under construction and that these amounts go in a totally separate account. This is to ensure that if for some reason the house is not built, your money would be fully guaranteed. Any developer who receives money for unfinished properties must guarantee it with this type of insurance.
Is it really necessary to get home insurance?
Despite what the banks often tell us, it’s not actually compulsory to have home insurance unless one of the conditions of getting a mortgage with that particular financial institution requires it with certificates or derivatives.
The bank can lend you money or place a loan with a third party. The bank issues mortgage certificates and you can underwrite some of them with a higher interest than a deposit.
In this situation, the bank is lending money to a third party who acquires these certificates and do so through the mortgage certificates. If this happens, fire insurance and other damages must be taken out only for the building.
Now, with the Mortgage Directive that came into force in Spain in March 2016, the linking of insurance to banks is prohibited, which gives more freedom of choice to the customer when choosing their insurance provider. Although this Directive has not yet gone through, it may still apply.
What is legal aid insurance and what is it for?
It is common practice to have legal aid insurance associated with the ownership of a home. It serves to pay in the case that you have problems with a neighbour or with the homeowners’ association of the building and you want to contract legal assistance to solve the dispute. It is essential to have this insurance separated from your home insurance so that if at any time you have to make a claim against this insurance, you can do so at any time without delays.
There are many types – it can be for the tenancy of the house, including vehicles and other contents. From as little as 40 euro a year, you can have coverage that is worthwhile in this type of situation.
What about civil liability insurance?
According to article 1.902 of the Spanish Civil Code, the resident or homeowner is responsible for the damage caused to third parties. Another article, article 1.907, regulates the damage that the occupant might cause by the ruining the house or its facilities, and that they must face payment of these damages themselves using current and future assets (this is established in article 1.911 of the aforementioned Code).
Liability insurance helps to make a legal defense to a justified or unjustified claim that you might receive. Imagine that you have caused 1,000 euro worth of damage and the complainant wants to reclaim 10,000 from you… you’ll have to go to court. All legal costs, notaries and solicitors will be paid for by the insurance. In the case of a conviction, and if the insurance agreement is properly drawn up, that could also be paid for. The most important thing is to establish an adequate limit.
In the case of a gas explosion, for example, enormous damage could be caused and given that different insurers have different limits for insured capital, these may or may not be enough to cover the claim and it is advisable to consult your insurance broker. Better safe than sorry.