Are you looking for a competitive homeowner’s insurance? If so, do you know where to look? This discussion is designed to provide the answers to these questions, as well as the raison d’etre for utilizing an online insurance comparator by InfoPrimes to determine which insurance company is offering the best value products.
It is always wise to look for the best value for money for any product or service that you need. However, under the current global circumstances, reducing your monthly expenses as much as possible is imperative to survive the New Normal caused by the coronavirus pandemic.
The Global Economy: Setting the scene
The world is tiptoeing out of the stay-at-home, or lockdown environment, caused by the novel coronavirus, COVID-19, that has swept and continues to sweep through the world. Current statistics show that there are over 8.2 million infected people with 446 392 fatalities across the world. The USA has the highest statistics, including circa 2.2 million infections and 119 132 deaths.
The global economy came to an abrupt halt earlier this year, and it is currently being rebooted. The challenges with rebooting the global economy are discussed by Noah Kagan and Aswath Damodaran, who is known as the ‘Dean of Valuation.’ Damodaran is also a professor of Finance at the Stern School of Business at New York University. In his interview with Kagan, he noted that the pause is the world’s fiscal and economic systems that have never been seen before. Never in the modern history of man has the global economy come to an overnight standstill. Consequently, no one knows how easily it will restart.
Unfortunately, it stands to reason that, as a result of this global economic pause, the world is in a severe economic recession with millions of people, furloughed, or laid off. USA statistics show that about 36 million people filed for unemployment benefits. Patricia Cohen and Tiffany Hsu, in their article titled, ‘Rolling Shock’ as Job Losses Mount Even with Reopenings,” note that the layoffs and furloughs continue even though the severe lockdown restrictions are lifting, and more sectors of the economy are opening again.
Property insurance: A definition and purpose
At this point in the discussion, it is essential to be cognizant of the property insurance policy’s purpose and function. If you do not understand how insurance is designed to protect you from financial ruin, then the decision-making process could be more difficult.
Investopedia.com notes that” insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.”
More specifically, property insurance aims to protect “against most risks to property, such as fire, theft, and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance.”
The role “value for money” plays in determining an appropriate insurance policy
While it might be tempting to cancel your property insurance due to budgetary constraints, there are many reasons this is not a good idea. It is far better to use an online comparison tool to search for a product that offers better value for money.
What is value for money, and what role does it play in determining what insurance policy you should take?
The Businessdictionary.com defines “value for money” as “a utility derived from every purchase or every sum of money spent. Value for money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase.”
What to look for when choosing an insurance policy: A case study
As described above, the most important aspect of choosing the right property insurance is the value for money ratio. This is usually determined by looking at the insurance policy’s terms and conditions, or the fine print.
Unfortunately, the fine print is often challenging to understand by consumers and people that aren’t working directly in the industry as financial consultants. Therefore, as highlighted earlier in this discussion, it is worth signing up with an online comparison tool to guide you in your search.
Let’s consider the following case study to explain what to look for when choosing a property insurance policy.
Let’s assume you intend to purchase a high-value home in an upmarket area in the New York suburbs like Brooklyn. The purchase price is just over $400 000. Because you are financing part of the purchase with a mortgage, you are required to take out property insurance. Finally, it makes sense that you would like to pay as little as possible on a suitable insurance policy.
And, this is where the “value for money” calculation becomes relevant.
The average annual home insurance premiums in New York State are $2709 for houses valued at about $400 000. Interestingly enough, this is 20% lower than the national average. And, the cover includes $400 000 dwelling cover and $300 000 liability cover. The deductible is $1000.
If you decided that paying $2709 per annum is too much and you find an insurance company that offers you a policy with an annual premium of about $1200, one or more of the several aspects could change:
- Your deductible will increase substantially.
- The dwelling and liability coverage will be reduced.
- Elements such as fire insurance, earthquake insurance, flood insurance, and boiler insurance will be removed from the policy.
Let’s consider a quick calculation
If you accept the quote of $2709 per annum, then it works out to $2709 / 12 = $225.75. Let’s assume you claim against flood damage, and the deductible is $1000: the value of the claim is not relevant here. Therefore, the annual cost of your policy increases by $1000 to $3709. This, in turn, translates into $309 per month.
On the other hand, if you choose the reduced premium policy, your annual premium is $1200, or $100 per month. However, the cost of your deductible has risen substantially to
Cover the cost of the reduced annual premium. In this case study, the cover remains the same as the first policy example. Let’s assume that the deductible is $5000. Therefore, for the one claim during the year, your policy’s total cost increases to $1200 + $5000 = $6200. This number translates into a monthly cost of $517.
Consequently, it is reasonable to assume, based on these calculations, that the policy with the annual cost of $2709 is better value for money that the policy that costs $1200 per annum.
Nicola Holder 