Have you bought or are you in the process of buying a house? Then you should know that you need to have multi-risk insurance. The question is often what type of insurance to choose: multi-risk home insurance, i.e., individual, or multi-risk condominium insurance, i.e., joint/collective? This guide will help answer all your questions.
This is today´s topic in the financial health section, which is published every two weeks and is provided by Doutor Finanças for idealista/news.
Insurance that is mandatory
Anyone who lives in an apartment knows that the issue of condominiums is always a delicate one. Decisions must be made jointly by all the owners of the various units in the building, and this can be a real challenge. The topic of “multi-risk insurance” is no exception.
This insurance is mandatory—both for units and common areas—and is provided for in Portuguese law (Decree-Law No. 267/94 of October 25). In other words, it is imperative that all apartments (and other areas of the building) are covered by an insurance policy, which can be individual or joint. It is so important that the condominium management company has the autonomy to take out insurance on behalf of the owner of the unit if they refuse to do so. The owner is then responsible for the associated expenses.
The only mandatory coverage that protects the home and common areas, as required by law, is fire insurance. However, condominium management companies and insurance companies themselves always recommend other types of coverage, such as:
- Damage caused by extreme weather events;
- Theft;
- Damage caused by failures in the water or electrical network;
- Temporary deprivation of use of the home;
- Civil liability.
- Please note that, in most cases, multi-risk home insurance does not cover the contents of the home. For this, you must take out contents insurance associated with the multi-risk policy.
Multi-risk home insurance or multi-risk condominium insurance?
Do you recognize the dilemma? This is one of the first questions that comes up at condominium meetings where the topic is discussed: whether the condominium owners are interested in taking out a kind of joint policy or individual policies (calculating the areas of each unit and the corresponding percentage).
The difference between these two types of insurance essentially relates to the speed with which problems are resolved, the need to activate the policy, and the value of the premiums. Multi-risk condominium insurance allows the policy to be activated and responds much more quickly to needs, should it be necessary to use the service. It also ends up being more economical for each unit owner than if they were to take out individual multi-risk home insurance.
Even so, it is not necessary for 100% of the units to agree in order to take out collective insurance. Most insurance companies require at least 50% of the units to sign up for this service, however, there are companies on the market that require a lower percentage.
If you choose to take out multi-risk home insurance, i.e., individual insurance, the owner of the unit must ask the condominium administrator to indicate the value of their unit and the corresponding percentage that the insurance should cover. This is because the value of the common areas is calculated based on the total value of the building and the percentage assigned to each unit.
What if all the condominium owners opt for multi-risk home insurance? In this case, there are two possibilities:
- All owners must have individual insurance that covers the value of the unit + the corresponding percentage;
- Multi-risk condominium insurance is taken out that only covers the common areas. In the event of a claim in one of these areas, the process ends up being much faster, because only one policy needs to be activated.
- If you have recently purchased an apartment, check with the condominium administration to find out what the procedure is in this regard. If your condominium has building insurance and you are paying for home insurance, you may be paying for two multi-risk insurance policies unnecessarily.
What about when multi-risk insurance is associated with a mortgage?
One of the mandatory services in a mortgage process, regardless of whether it is for an apartment or a house, is multi-risk insurance. This makes sense, not least because it is in the interest of the bank lending the money to safeguard the property.
When we analyze the issue of condominiums in this equation of multi-risk insurance associated with a mortgage, several points arise in this scenario:
- Value update. As we have already seen, one of the requirements for taking out a mortgage is multi-risk insurance. The issue is that, in the case of apartments, the value corresponding to the common areas is not calculated at the outset. The value covered only reflects the area of the unit. If there is no multi-risk condominium insurance just for the common areas and you do not present the combined value of the unit + percentage to the insurance company, you may later have to update the value provided for in the policy, based on that same calculation.
- Inability to take out multi-risk condominium insurance. If you took out multi-risk home insurance as part of a cross-selling strategy with your bank in order to obtain more favorable conditions, you will probably not be able to replace this insurance with multi-risk condominium insurance.
Now that you know the ins and outs of multi-risk insurance for apartments, analyze your particular situation. You may be missing out on an important opportunity to save money. Don´t forget to check the policy coverage as well.
source: idealistanews