Homeowners Choose from Three Insurance Policies
If you want to insure your house and/or its contents, there are three policies for you to consider: Home Fire and Natural Disasters, Home Theft, and Homeowners’ Liability. Outlined below are their merits and disadvantages so that you can decide for yourself.
Hogar Seguro 2000 Home Fire and Natural Disaster Policy. This is for homes and/or their contents. It can only be used for single dwellings (houses or residential condos having a ground floor), not for commercial buildings or apartments.
Within this policy, there are four “subcoverages”: “A” covers damage caused by fire and lightning; “B” covers mutiny, strikes, vandalism, hurricane, cyclone, explosion, smoke, falling objects, vehicles and resulting fire; “C” pays for floods and landslides; and “D” covers natural disasters, such as quakes, tremors, volcanoes, tsunamis, etc. Coverages C and D are sold jointly. You can take A coverage by itself, A plus B, A plus C and D, or complete coverage of A, B, C and D.
The premium is based on the value of what is being insured, and it is up to you, the applicant, to come up with reasonable values. The house should be insured based on “depreciated new value,” i.e. estimated cost of rebuilding, less 1% depreciation for every year since the house was built or since it was extensively refurbished. For the contents, use “actual cash value,” i.e. the amount you would get at a garage sale. The National Insurance Institute (INS) does not ask for a comprehensive list of contents, but you should itemize single articles worth $750 or more.
Coverage A costs 0.0672% of the value; A plus B costs 0.0896%; A plus C and D costs 0.2212%; and complete coverage costs 0.2436%. In addition, premiums are taxed 13%. Example of all-in cost: A, B, C and D for a $100,000 home would cost $243.60 per year, plus 13% tax, for a total of $275.27. Most people buy the full coverage.
For B coverage, the deductible is ¢20,000 ($40) per claim. For hurricane damage, it is 20%, with a minimum of ¢20,000. For C and D coverages, the deductible is 1% of the total insured amount, with a minimum of ¢50,000 ($100).As is usual with INS policies, these deductibles are fixed and standard – no variations are possible.
INS has offered the Hogar Seguro 2000 policy since 1988. It has proven good for major disasters, but don’t expect to be paid for cigarette burns on your living room carpet.
In the aftermath of the bad earthquakes of 1990 and 1991, INS responded fairly and efficiently, and paid claims within two months. Unfortunately, the response after the Parrita quake of November 2004 was not so good – some claims took nearly a year.
A recommendation: if you live in a non-combustible house (like most, nowadays) and earthquakes are your major concern, don’t insure the contents, which would hardly be affected in a quake. If you live in a combustible house, your major fear is probably fire; when a house catches fire, the contents are usually lost, and so you should insure them on the same policy. The Hogar Seguro 2000 policy is in colones, a currency that, as we all know, is constantly devalued. To compensate for inflation, this policy has an optional inflationary clause (which most insurance agents routinely include for their clients) whereby the insured value is updated by INS every year on the anniversary of the policy. Make sure your policy includes this clause, which is known as Cláusula PCI.
Home Theft Insurance. INS will provide theft insurance if a house has brick or block outside walls, double or deadbolt locks on outside doors and bars on all the windows. To get a policy, you must list everything within the house – not just high-risk items such as TVs and stereos – but you can’t insure jewelry, gems, precious metals, furs, cosmetics, cash, portable electronics, cameras, firearms, motor vehicles, animals, documents or securities.
Your list should include actual cash values in colones for each item, approximate dates of acquisition and full descriptions of electrical items, cameras, mowers, bikes, etc., with makes, models and serial numbers. The list can be in English – insurance agents who are worth their salt will translate. INS pays theft claims in verifiable situations of breaking and entering – providing the stolen items appear on the list.
The deductible is 10% of the value of the stolen items, with a minimum of ¢50,000 per break in.
Damage to the home caused by thieves breaking and entering is paid, up to 5% of the total insured value, and based on tradesmen’s bills for repairs.
The premium rate depends on the security and location of the home; there are discounts for good security and surcharges for remote locations. The average rate is 1.4% per year of the total on list, including 13% sales tax.
It usually takes two to three weeks to get theft insurance in place, so don’t apply on the eve of your departure for a world cruise. This policy is extremely hard to claim against – there are lots of conditions and escape clauses, the most notorious of which says, “If the building is to be unoccupied or its usual dwellers absent for a period of more than 48 hours, the insured must place it in the care of a guard. For periods greater than one month, in addition to hiring a guard, the insured must inform INS in writing at least one week before the absence is to commence…” (translation).
It sometimes makes sense to install a home alarm system and forget about theft insurance!
Homeowner’s Liability Insurance. INS’s Responsabilidad Civil General policy pays awards granted by the Costa Rican courts stemming from lawsuits resulting from accidents occurring on insured premises. In other words, INS will only pay a liability claim if the accident happened within the insured property, and if the courts say the insured caused the accident. Policy also covers legal costs if the court rules they should be paid by the insured. If it is foreseen that an accident may occur to a guest or visitor to your house, a liability policy may be advisable.
Two coverages are available: coverage A, injury, loss of life and limb; and coverage B, damage or loss of property.
You can have separate limits for coverages A and B, but the usual is a combined limit, wherein INS will pay up to the insured limit, per accident, regardless of the breakdown of the award. Try to visualize a worst-case scenario of what could happen in an accident –that is the recommended limit. Take into account, however, that in Costa Rica awards have not gotten out of hand, as in other countries, with regard to punitive damages, pain and suffering, deep pockets, etc.
For homeowners, the rate is approximately 1% per year. The exact rate is fixed by INS on a case-by-case basis, per the perceived risk as described on the policy application, which has to be filled out by the agent when visiting the premises. It is also usual for INS to send an inspector before establishing the rate, to look over the house and verify the information on the application; this can take a few weeks when the house is outside of the Central Valley.
There is no law in Costa Rica stating that homeowners should have a liability policy. Additionally, Costa Rican judges seem to believe that everyone should exercise reasonable care to avoid accidents, and they mostly disregard punitive damages. Therefore, liability claims stemming from trivial accidents are infrequent, and not many homeowners buy liability policies. However, if a home is to be rented out to foreigners of a high economic profile, a small liability policy may be in order.
Contact David Garrett at 233-2455 or firstname.lastname@example.org. The purpose of this column is to give the reader a better understanding of insurance in Costa Rica. The opinions and viewpoints expressed are those of the writer, and do not necessarily represent the official position of INS.
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