How do you know if you have good home insurance?

Policies are not all the same and you need to read the small print with a fine-tooth comb, say experts

Is it compulsory to have home insurance in Spain? In principle, no, unlike in other nearby countries, where it is compulsory even for tenants. In Spain, however, the new Real Estate Credit Law – in force since mid-June – allows banks, in order to grant a mortgage, to require that the property to be purchased be insured, although they are obliged to accept alternative policies submitted by the client, if these meet the conditions required by the bank. But, in the case of wanting or having to do so, what should the ideal home insurance policy be like in order to be really effective?

It is a question that potentially interests a large number of users, as home insurance protects more than three quarters of Spanish homes. If 30 years ago only one in five Spanish households had this type of policy, at the end of 2018 almost 20 million of the 25 million houses and flats that make up the housing stock were insured, according to the insurance business association Unespa.

And the larger the size, the higher the insurance rate. At one extreme, only 18.7% of the usual one-room dwellings (a term that includes kitchens of more than four square metres, among other rooms) have home insurance, but, at the other, this proportion reaches 75% in the case of those with five rooms or more.

These figures do not satisfy Carlos Lluch, technical director of the brokerage Lluch & Juelich, for whom “in Spain there is no culture of risk and prevention, and the effects are felt on a day-to-day basis and also in extreme situations”, such as the floods last October in Mallorca. Those affected who did not have home insurance, says Lluch, have not been able to benefit from the coverage that the Insurance Compensation Consortium offers in the presence of risks that companies do not assume, such as material damage caused by exceptional natural phenomena, precisely because the condition to be able to take advantage of it is to be insured.

Two types of policy

In the words of the spokesperson for the Organisation of Consumers and Users (OCU), Ileana Iverniceanu, “there are mainly two types of home insurance: multi-risk and accidental all-risk”. The former list each risk they cover (fire, meteorological phenomena and theft, among others), each with its limitations and exclusions, but with no excess. On the other hand, the latter cover all damages caused by an accident, with some exceptions. “In each claim, the insured will pay an excess and they have some limitations, but their coverage is broader”, says Izverniceanu, for whom these are the ideal policies. “Also because they are shorter and simpler, the contract is more understandable,” he says.

This type of home insurance, however, is very rare in the Spanish market. “Here, companies market multi-risk insurance and, on top of that, you can optionally take out the accidental all-risk cover,” Iverniceanu explains. In his opinion, this is a good solution to provide a broader coverage, because it has the advantage that, for ordinary claims, no excess would be applied. However, for those covered by the additional guarantee, apart from the deductibles or minimum indemnifiable damages, “limitations may appear (for example, a maximum indemnity of 6,000 euros per claim and year) that would make them uninteresting”, he points out.

Securing reconstruction

Whichever option is chosen, Lluch’s first recommendation is to “correctly value both the building and the contents, identifying what is most important for the continuity of the family’s quality of life”. Even if they have the same surface area and the same architectural characteristics, a flat on the beachfront will not have the same value as another flat five streets further inland. Rebuilding them in the event of a wreck, however, will cost the same. Therefore, for this expert it is important to ensure the real reconstruction value of the flat or house and not, as banks often require, the capital of the loan, as these are amounts that almost never coincide. And, if the property is located in a community of owners, it is necessary to find out whether the entire property already has a building insurance policy. If so, it would make no sense for the bank to require the client to take out insurance for the building, as this would be a duplication of insurance. A transfer of rights for the co-ownership share held in favour of the bank will suffice.

Lluch’s advice for correctly valuing the contents to be insured is to make an inventory every three years of “all the goods that populate our lives and with which we would like to start again in the event of an accident”. But you have to pay close attention to the valuation criteria adopted by insurance companies. “In many policies they will not pay for household appliances if they are over a certain age and they may apply depreciation to almost everything, ruining our expectation of staying as we were before the accident,” says Lluch. So he warns: “Beware of cheap insurance”.

And, since it is impossible to insure absolutely everything, documents, files, photos and in general anything particularly valuable from an emotional rather than a material point of view will have to be adequately protected, because insurance will not be able to pay for them with money.

A hotel and even the rent

Another element to check is that in the event of serious accidents, the insurance covers a few days’ hotel accommodation and up to a year’s rent for another house. “There are low-cost companies that do not cover this, and we must be aware that saving a few euros can be very expensive,” warns Lluch.

But it will also be necessary to ensure that the capital covered by civil liability is at least 600,000 euros: “Imagine we have a fire and damage two flats like ours and we will understand why”, says Lluch, who also adds in this chapter the risks of private life (“Do we travel? Do we ride a bike? Do we have a recreational drone?”, are examples of questions that, in his opinion, we should ask ourselves).

And, very importantly, it is a good idea to take out the damage claim in another specific insurance policy. If we take out this cover within the home insurance policy, which allows us to cover the legal costs of the claim for damages we have suffered, it will not be valid for claims against the insurer itself. “It is better to be able to do so”, suggests Lluch.