My heart goes out to everyone who has suffered from the devastating effects of Fabian. It is quite amazing to note that just about every resident in Bermuda is putting on a brave front, but not having access to basic necessities makes for a very long workday and I see the exhaustion on the faces of my colleagues, clients, and friends. Those whose lives have been turned upside down may not feel sufficiently energetic to think about insurance coverage at this time. Put the article away and review it later when things have settled down and rational decisions are more easily come by.

Playing the odds

There are two preeminent issues that always come up when insurance is discussed.

The first is personal as in - how many times have many of us written out a cheque (or paid by Internet) for an insurance policy, thinking all the while: "Do I really need this? After all, my house is made of thick stone, there is hardly any wood in it, I could really use that money for something else."

The second is perception when one often hears comments such as, "just exactly what do the insurance companies do with all that money?" We think that they have few claims and those reserve dollars just pile up, making shareholders rich. In reality, insurance companies are regular businesses, producing and selling a product that almost everyone needs and subject to the same economic laws of supply and demand. Additionally, between the insurance and the reinsurance process, they spend inordinate amounts on research and statistical analyses, making educated guesses as to when, where, how, and what will be the next big catastrophe.

The `why' of the equation is not a factor. They must charge a competitive premium, pay operating costs, set aside sufficient reserves to provide full coverage for future claims, invest the reserves to at least beat inflation, and make a profit. What happens if their calculations are off-target, say hurricanes are more severe than anticipated, or terrorist attacks are more brutal? They pay the price in playing the odds in an extremely sophisticated financial environment. More than a few miscalculations, and an errant company is shut out, permanently.

Peace of mind

Is insurance expensive or inexpensive, relative to what you get? Sure, there is no thrill in purchasing that annual premium, not like there would be in buying an electronic entertainment centre, taking a trip, or a very expensive car! All of those items, by the way, cost a lot more than just a few annual premiums. Insurance is for the times that aren't fun; when you are at your most vulnerable; when your mental and physical state has been totally devastated because you have lost your best friend (life insurance); when your home, your place of security and refuge, has been turned from one of tranquillity and safety into total chaos (property & casualty insurance); or when your contingency cash flow might not be at its best (business interruption insurance).

Who has $5,000 to $200,000 to fork out at a moment's notice to completely overhaul your wardrobe, repair a roof, rebuild a cottage, restock a store, or clear a path to your front door? What is the cost to you in mental anxiety, physical stress, loss of sleep, loss of livelihood, and loss of control? How do you measure any of those effects? You can't, but having insurance coverage goes a long, long way toward recovery of a normal life.

What does a general home insurance policy cover?

More than you may realise. Buildings, blinds, swimming pools, paths, patios, driveways, fences, gates, internal duct work, cables, meters, fixtures, fittings and so on. Perils (another name for risk, hazard) covered are fire, explosion, lightning, smoke, earthquake, hurricane, cyclone, tornado, windstorm, sea flood, riots, civil commotions, strikes, labour or political unrest, malicious persons or vandals, falling trees, aircraft , aerial devices, impact of vehicle or animal (think of all those cars ploughing through stone walls on Harbour Road), freezer contents, valuables, loss of money (tourists with a capital T are robbery targets), loss from fraudulent use of credit cards (identity theft) and more.

Policy coverage also includes the cost of rebuilding from soup to nuts, architects fees, surveyors, legal fees, building regulations and government statutory costs, glass breakage, clearance costs, demolishing hazards, rent and alternative accommodations (a percentage of the amount insured) and so on.

Insurance is designed for contingency measures, not permanent solutions. You cannot check into a hotel and live like a queen (king) for six months while your home is being rebuilt, nor can you construct a new house twice as large as the old one. In general, in most policies, conditions are predicated on the sum insured, a term meaning what amount did you insure for? Many homeowners may find out that in today's construction environment, the replacement value of the home they insured originally is nowhere near the construction cost of a new home today - estimated at as much as $325 per square foot.

Surrounded by unfortunate reminders of the fragility of our finite world, whatever your position - as soon as you are able, now is a good time to review your policy coverage to ensure that you are protected.

Insurance is part of financial planning for a secure future. For those of you not able to afford property and contents insurance, please consider working with an insurance agent to plan for bare minimum coverage. It is better than having none.

@EDITRULE:

Martha Harris Myron CPA CFPr is a Bermudian, a Vice President and Certified Financial PlannerT(US license) practitioner at Bank of Bermuda. She holds a NASD Series 7 licence, and formerly owned a US financial services practice meeting the needs of 400 individual and corporate clients. Email can be directed to marthamyronnorthrock.bm

The article is for general informational purposes only; actual individual insurance policy terms and conditions will vary according to the insurance carrier. The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda. Under no circumstances is this advice to be taken as an endorsement for a specific company or product, as a recommendation to buy or sell investment products or as a promotion for a specific financial plan.