Sound and silly reasons for taking out home and non-life insurances
Household contents insurance: is that mandatory? And why would you ever take out liability insurance?
Over- or underinsured: what does that mean? And what do you absolutely have to insure, and what you can do without? Our home and non-life insurances expert explains it in three simple tips.
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Tip 1: Take out insurance for “existential risks”
A good starting point is to take out insurance for costs that you cannot bear yourself when things go wrong. These are called existential risks. A good example is your residential home. If it burns down, you will probably not have enough money to have a new house built. This is why it is wise to take out home insurance for your house, so you will always have a roof above your head. An example of a non-existential risk is damage to your smartphone. If that happens to you, you can still use last year’s model or that old Nokia 3310 that is gathering dust somewhere in the attic. You can use the table at the bottom of this article to see what is and what is not existential.
Tip 2: Opt for extensive coverage and a high deductible
The same logic applies here. You can usually pay the first 500 Euro of the damage yourself if something actually happens. But if you are held liable for an amount of 2 million Euro, a cover of 1,250,000 Euro will certainly not be enough. The chance of something like that happening to you is small, but the consequences are huge. A more extensive coverage often results in a somewhat higher premium, but will provide you with better insurance. It does not help you a great deal if you are paid out 40,000 Euro to rebuild your house after a fire. On the other hand, the high deductible ensures that your premium remains affordable.
Tip 3: Arrange your insurance as far as possible in one package per household
Many people are insured for some risks, but never check if their coverage still matches their current situation. Or they have started living together or got married, and are still separately insured for liability or for their household contents. In that case you not only unnecessarily pay too much for premiums, but you will also have to deal with a lot of fuss if you have incurred any losses.
If you have two household insurance policies on the same address, you are free to report the damage to the insurer of your choice. The insurer can then decide for itself to recover the damage, but as a consumer you will not notice this. What can be a problem is that you probably have cover as a single person, and not as a cohabitant. As a result, too little value is insured, or damage caused by your partner is not covered.
Be watchful of underinsurance. An illustrative calculation:
The value of your house (excluding land) is 250,000 Euro. You have home insurance worth 150,000 Euro (underinsured). But then you house gets damaged in a fire and part of it has to be rebuilt. A contractor makes a quotation for damage repair: the costs are 100,000 Euro. However, your insurer notices that you are underinsured and will not pay out in full. In this case you will receive a payment that is in proportion to your coverage: 150,000 / 250,000 * 100,000 Euro = 60,000 Euro, as you have been paying less in premiums all this time and had insufficient coverage. Exactly for this reason we recommend that you always include a “guarantee against underinsurance”. This usually takes only a little extra trouble when taking out the insurance.
Insuring remains custom work. For many people, a household contents insurance plan is not necessary from a financial point of view, but may be advisable sometimes. For example, do you have a lot of sports equipment, such as surfboards or racing bikes, musical instruments, designer furniture or many electronic devices in your house? Then taking out insurance may be worthwhile. Do you not have any expensive belongings? You may not have to insure that second-hand couch and your old bike. You should therefore always keep a critical eye on your own situation.
Insurances and coverage
|Home||Damage caused by storm, fire and water||X|
|Continuous travel||Medical costs abroad||X|
|Damage to holiday accommodation||X|
|Accidents||Permanent invalidity/ loss of a bodily function||X|
|Legal assistance||Income disputes||X|
|Tax and wealth disputes||X|
Home insurance is the only mandatory insurance in this overview. This obligation only applies if you have an owner-occupied house that has been mortgaged, but in fact it is always wise to have home insurance. In case of apartments, this insurance has almost always been arranged through the owners’ association (Vereniging van Eigenaren, VvE), and the premium will be included in the monthly contribution. Be sure to always check the coverage provided.
The buildings or home insurance covers damage to your house. Here you can think of, for example, damage caused by storm and fire, but also of burglary damage to your doors and window frames. Anything that has been permanently attached (‘nailed down’) to the house will be covered by your home insurance. This means, for example, that the curtain rails are insured, but the curtains are not. Laminate flooring has not permanently been attached either, and is therefore not covered by the home insurance. You can take out household contents insurance for all things in your house that have not permanently been attached.
Household contents insurance
The household contents insurance covers all your belongings that are in your house. As you usually can afford new or second-hand household contents in the event of damage (for example caused by theft, fire or water) if the worst comes to the worst, this is not an existential risk; you will not be faced with direct financial problems if you were to lose your household contents. Nevertheless, having household contents insurance could be reassuring. Sometimes, your entire wardrobe could be worth quite a lot of money. You will also have bought a lot of new furniture for your new house. You can also often insure mobile electronics outside the house, but you will have to pay a little extra premium for this.
Annual travel insurance
Travel insurance should cover more than just your luggage. At Viisi we feel that it is especially important that adequate coverage is provided for your medical costs abroad. Such costs are usually not fully covered by your basic health insurance package. In some countries, such as the United States or Switzerland, medical care is many times more expensive than in the Netherlands. In developing countries, it’s also possible that as a tourist you do not end up in regular care, but in a private hospital or clinic. These also often have higher prices than you would pay in regular Dutch healthcare. Your healthcare insurance usually pays only a percentage of the amount similar treatment in the Netherlands would cost. This is why it is important to have adequate travel insurance.
What your travel insurance should cover depends on the kind of trips you will be making. If you are backpacking through Asia, worldwide coverage will come in handy. Are you going on holiday to France with your family by car? In that case, breakdown assistance and alternative transport may be worth having. We recommend that as a minimum you cover the medical costs abroad.
Liability insurance covers the damage you cause to someone else. If you damage your neighbour’s car by cycling too close to it, but also if you run someone over with your bike and that person is unable to work as a result. In the latter case, you can be held liable for that person’s loss of income. Such amounts can really add up. Liability insurance is one of the most important insurances that should be arranged properly.
We recommend that you opt for extensive coverage of liability, in the amount of 2,5 million Euro. Maximum coverage is important in the US or in Germany, as the claims there are much higher than in the Netherlands. To make sure that you are also adequately covered when on holiday in such countries, a coverage amounting to 2,5 million is advisable. The difference in premium amounts is limited; liability insurance often only costs a few Euros per month.
The accidents insurance pays out a one-off fixed amount if you sustain a loss of functionality of part of your body owing to an accident. Think for example of the loss of a finger, your eyesight or sense of smell. Depending on the seriousness of the injury, you will be paid a sum of money. You can use this sum, for example, to have your home adjusted for wheelchair use, to have a stair lift installed, or to buy a specially adapted car. Do you have more than 50,000 Euro in savings available for financing such adaptations? Then it may not be necessary to take out accident insurance. In most cases, however, this is an essential risk, and we recommend that you arrange insurance.
Legal assistance insurance
Legal assistance insurance insures you for the costs of legal assistance in case of disputes. If you earn less than 27,900 Euro per year (single) or 39,400 Euro per year (married or living together), you may receive free assistance from the Legal Services Counter (www.juridischloket.nl). In that case, legal assistance insurance is not necessary.
Legal assistance insurance is really useful if, for example, you are faced with an income dispute (you are dismissed), or a dispute with the person from whom you buy a house, or with your new neighbours. Be aware that disputes that already exist fall outside the scope of your insurance. This is why often a run-in period of 3 months applies, during which you are not yet covered. We recommend that in any case you cover Consumer disputes, Home disputes, and Income disputes.
If you have a car of your own, you are required by law to take out third-party liability insurance at a minimum. This insurance covers the damage you cause to someone else with your vehicle. You are not insured for theft of or damage to your own car under this insurance. This minimum coverage usually suffices for older cars with a low current market value. If the value of your car is still significant, it may be advisable to opt for more extensive coverage, such as third-party liability, fire, theft and windscreen damage or comprehensive insurance. The former insurance covers, for example, damage caused by theft or storm, or windscreen damage.
Comprehensive insurance usually also covers damage to your car due to your own fault. If you are not good at reversing into a parking space, this may be a good idea.
Disclaimer: This article is intended to provide our customers with good information. This is not advice or a manual for arranging insurance yourself. A Viisi advisor will be happy to show you what the perfect insurance package looks like in your situation when deciding to take mortgage advice at Viisi as well.