A subsidiary of the Nigeria Sovereign Investment Authority (NSIA), InfraCredit, has opened a N50 billion 600MW Shiroro Hydro Electric Infrastructure Green Bond to boost the plant and power generation nationwide.
Launched in partnership with GuarantCo, KfW Development Bank and Africa Finance Corporation, the deal is covered by the North South Power Company Limited’s (NSP) N8.5 billion 15-year 15.60 per cent Series 1 Guaranteed Fixed Rate Senior Green Infrastructure Bonds Due 2034, operator of the 30-year concession programme.
In a statement, the Executive Vice Chairman/CEO, NSP, Dr. Olubunmi Peters, relished the milestone move.
The Chief Executive Officer, InfraCredit, Chinua Azubuike, noted: “With the completion of the Series 1 Guaranteed Green Infrastructure Bond issuance, the company has established a long envisioned link with a more sustainable long-term, local currency financing required to implement its ambitious strategic power generation expansion plan through the capital markets.
“Infrastructure assets like Shiroro Hydroelectric Power Plant generate social, environmental and economic impact such as contributing to greenhouse gas emission reduction, revitalising disenfranchised areas, improving access to services and creating employment.
“Shiroro Hydro is an extremely essential and resilient asset with a 30-year consistent production history. North South Power, with the acquisition of a 30-year concession in 2013, has demonstrated the competence and ability to deliver on its business targets from restoring capacity target to 600MW and a 45 per cent increase in power generation.”
He added: “We believe that a sustainable and inclusive implementation of the eligible customer framework in a manner that generates economic benefits for all stakeholders will accelerate the industry’s strategic growth. With the success of this first-in-kind transaction, InfraCredit has further demonstrated its pioneering commitment to promoting financial inclusion.
Fund Manager, African Local Currency Bond Fund, James Doree remarked: “The first corporate green bond in Nigeria, issued by North South Power and supported by InfraCredit, sets a benchmark for the domestic and regional capital market.
North South Power’s ongoing investments in the Shiroro power station since 2013 have restored nameplate capacity with minimal environmental impact and NSP is now able to generate more than 2,000 GWh on a yearly basis.”
The National Bureau of Statistics, NBS, said Nigeria recorded a total trade value of N32.26 trillion year-on-year in 2018, representing 39.3 per cent increase over the corresponding period in 2017.
The trade value for 2017 stood at N23.16 trillion.
The NBS said this in Foreign Trade in Goods Statistics for Fourth Quarter of 2018 posted on its website.
The bureau said the volume of total merchandise trade in 2018 was the highest recorded since 2014, nearly double pre-recession levels.
The Bureau said during the fourth quarter of 2018, total merchandise trade stood at N8.60 trillion compared to its value of N9.06 trillion recorded in third quarter of the year.
It said the total export component of the trade recorded at N5.02 trillion, represented an increase of 3.5 per cent over third quarter 2018 and 28.5 percent over fourth quarter 2017.
Meanwhile, the bureau said the import component stood at N3.58 trillion in fourth quarters 2018.
The figure showed a drop of N631.6 billion or 15.0 per cent compared to third quarter, 2018 but an increase of 69.6 percent when compared with the corresponding quarter in 2017.
However, it said the increase in export value and decrease in import value (relative to third quarter 2018) resulted in a favourable trade balance of N1441 billion, or 125.5 per cent over the preceding quarter.
According to the report, crude oil export has been the main stay of the economy, accounting for the largest share of total exports (84.2 per cent) in the fourth quarter of 2018 at N4.228 billion.
Non-oil products accounted for 4.6 per cent of total exports while other oil products accounted for 11.2 per cent of total exports in the quarter under review.
Ahead of the full implementation of the new capital requirement for Microfinance Banks (MFBs) next year, the National Association of Microfinance Banks (NAMB) is planning to float a National MFB licence with N10 billion capital base.
The move is to absorb those MFBs who may not meet the new capital requirement announced by the Central Bank of Nigeria (CBN).
“As soon as we set up the National MFB, we will list it on the Nigerian Stock Exchange (NSE) before the end of the year,” Rogers Nwoke, president of NAMB, told BusinessDay exclusively.
Nwoke said his team was at the NSE last week for a closing bell ceremony where he discussed with the Exchange on how the members of NAMB could come to the market.
But the move by NAMB may also have been informed by the plan by the CBN and the Bankers Committee to establish a National MFB across the 774 local government areas of the country using Nigerian Postal Service (NIPOST) facilities.
According to the National MFB establishment plan by the CBN and the Bankers Committee, the two bodies will utilise the sum of N5 billion as equity from N60 billion Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS) Fund, while NIPOST will contribute its offices across the country.
The CBN in October 2018 increased the minimum capital requirements for Unit microfinance banks from N20 million to N200 million, State MFBs from N100 million to N1 billion, and National MFBs from N2 billion to N5 billion.
The new minimum capital requirement was to take immediate effect for new applications while existing microfinance banks were required to fully comply with effect from April 1, 2020, according to CBN’s directive.
But MFB operators have been raising concern over the new capital requirement, saying it would be difficult if not impossible for many MFBs to meet.
Nwoke told BusinessDay that the existing 886 microfinance banks operating in the country have a capital base of N93 billion.
When contacted, Tokunbo Martins, director, Other Financial Institutions (OFIs) department, CBN, described the move by NAMB as “fantastic”.
Microfinance bank operators had protested the increase in their capital requirement and had written to the CBN for review of the new capital base and extension of deadline.
“We have taken all their requests on board and we are going to look at it,” Martins said. The CBN had directed that to meet the new capital requirements, existing microfinance banks are expected to explore the possibility of mergers and acquisitions and/or direct injection of funds.
Also, the regulators said the Revised Regulatory and Supervisory Guidelines for Microfinance Banks, Code of Corporate Governance for Microfinance Banks and sector-specific Prudential Guidelines for Microfinance Banks would be issued in due course.
Institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations, the apex bank said, would be allowed to open account at the CBN office within their state of operation. Such institutions would also be channels for micro funding activities of the CBN and the Development Bank of Nigeria.
The Central Bank of Nigeria (CBN), has unveiled the National Financial Inclusion Strategy designed to ensure that at least 80 per cent of Nigerians have access to banking and other financial services.
The Governor of CBN, Mr. Godwin Emefiele, represented by the Deputy Governor in charge of Financial System Stability, Mrs. Aisha Ahmad, made the presentation at the National Financial Literacy Stakeholders’ Conference in Abuja.
Emefiele said about 36.8 per cent of eligible Nigerian adults currently do not have access to financial services, adding that the figure indicated a significant improvement over the 41.6 per cent exclusion rate recorded in 2016.
He noted that although the improvement was encouraging, “there is still considerable work to be done to achieve the overall 20 per cent target exclusion rate by 2020.”
Emefiele said the apex bank had also released new policy frameworks on consumer protection, financial literacy and financial education.
He said, “Adequate consumer protection is critical to sustaining the long term viability of the financial sector because consumer protection is a necessary precursor to building and maintaining trust in the formal financial sector.
“An essential pillar of any consumer protection regime is consumer education, which is founded on financial literacy.
“The benefits of a financially literate population are immense. Consumers are better equipped to make optimal choices in the use of financial products, pose lower credit and default risk.
“In addition, it constitutes a market for sustainable financial services and promote Financial System Stability by increasing market demand and responsible use of financial services.”
Emefiele said the apex bank recently introduced regulations and guidelines for the licensing and operations of Payment Service Banks in furtherance of its efforts to leverage technology to enhance access to financial services for the unbanked.
According to him, the move was expected to drive down exclusion rates by leveraging wider variety of multiple channels to enhance access to deposit products, payments and remittance services to small businesses and low income households.
The governor, however, stressed that consumer protection and its constituent pillar of consumer education remained critical to the attainment of its objectives for inclusion.
The CBN boss said building inclusive financial systems had become an important objective for policymakers around the world given the positive effects it has on poverty reduction and enhancing economic prosperity.
He said the conference, themed: ‘Implementing Financial Literacy and Consumer Protection to Advance Financial Inclusion in Nigeria,’ could not be more unambiguous in its focus and urgency to move from the conceptual to practical in the drive for financial inclusion.
Emefiele said low financial awareness and literacy levels as well as consumer confidence remained critical issues which must be examined more closely if financial inclusion strategy must succeed.
He stressed that the financial system remained probably the most affected by technological advancement with new digital products and services which had emerged and the internet greatly influences consumers’ purchasing decisions as they continue to adopt e-commerce.
The CBN governor further noted that 1.4 billion electronic transactions valued at N97.4 trillion were processed in the banking industry in 2017, compared to 869 million transactions valued at N69.1 trillion recorded in 2016.
“While these developments are no doubt good for the financial system and are expected to aid our financial inclusion efforts, they are accompanied by a myriad of challenges,” he explained.
Among other things, he said privacy and security concerns, requiring enhanced privacy and data protection for consumers continued to pose a challenge to achieving financial inclusion.
He also said consumers are exposed to new and more inventive fraudulent practices which required stakeholders to double their combat efforts.
“The industry is also faced with an increasing complexity of financial products and services accompanied by consumers’ lack of information or capacity to understand such products and/ or their associated risks. Thus enhanced disclosure has therefore become very essential,” he said.
He added that as the markets develop with the introduction of new innovative players, products, and channels, the challenge for regulatory agencies will be to continually balance supervisory objectives aimed at identifying, managing and mitigating risk with those that support market development and help promote financial inclusion.
He, however, expressed hope that there will not only be renewed vigour but more alliances, partnerships and collaborative programmes at the end of the conference towards achieving its objectives.
“I sincerely believe that through our collaborative efforts, we will not only surpass our target of 80 per cent financial inclusion target by the year 2020, but also have financially capable and more confident consumers that would support the stability of our financial system and contribute to the economic growth of our great country,” he said.
With the revised National Financial Inclusion Strategy unveiled,the Central Bank of Nigeria (CBN) estimates 500,000 mobile money/bank agents to be available to serve about 105 million adult Nigerians by the year 2020.
The figure translates to about 476 agents per 100,000 adults, the CBN said in the new document which rolls out steps on how the country would get 80 percent of its adult population become financially included by the end of next year.
Nigeria in 2012, launched an ambitious National Financial Inclusion Strategy and adopted to achieve 20 percent exclusion rate by 2020.
Though progress has been made, the latest survey on the access to Financial Services by EFInA indicates that about 36.8 percent of eligible Nigerian adults are still excluded from Financial Services.
This is however, down from the 41.6 recorded in 2016.
“Whilst the improvement is encouraging, there is still considerable work to be done to achieve the overall 20% target exclusion rate by 2020.
”And the Revised National Financial Inclusion Strategy rightly identifies Consumer Protection and its constituent pillar of Consumer Education as critical to the attainment of its objectives,” Aishah Ahmad who is the Deputy governor incharge of the, Financial System Stability, FSS, Directorate at the CBN said at the launch of the new strategy.
The CBN had targeted 62 agents per 100,000 adults in the 2012 strategy. But it had reviewed figure upwards in the new document considering the global shift from physical bank branches to branchless banking.
“The justification for this new figure is based on recent developments in the financial sector aimed at taking financial services to the unserved and under-served using branchless platforms such as agent banking and digital platforms,” the CBN said in the new document.
To derive the financial inclusion targets, the CBN also expects the payment, savings, credit, insurance and pension components of the financial services system to reach 70%, 60%, 40%, 40%, and 40% of the adult population respectively.
Also as seen in the document obtained by BusinessDay, the CBN expects bank branches, Micro Finance Bank branches, ATMs, as well as POS to increase to 7.6; 5; 203.6; and 850 to be able to serve every 100,000 adult Nigerians by next year,
At the event where three other documents, including Consumer Protection Framework (CPF), National Financial Literacy Framework (NFLF), National Financial Education Strategy (NFES) were equally launched, Deputy Governor Ahmad said during the course of implementing the previous Strategy, the need arose for its review to meet the challenges and re-assess the developments and the current realities, of the ever evolving environment in which we operate.
According to her, building inclusive financial systems has become an important objective for policymakers around the world given the positive effects that financial inclusion has on poverty reduction and enhancing economic prosperity.
“The need for financial literacy and consumer protection has never been so nuanced. We must not only pursue these with renewed strength; but must also strengthen collaboration amongst all stakeholders if we are to succeed with the pursuit of the nation’s financial inclusion programme.
“With support from the Bill and Melinda Gates Foundation we now have a revised strategy which we believe, with your support, would aid us as we strive to meet our year 2020 target of reaching 80% financial inclusion level,” she told the stakeholders.
The revised strategy particularly recognises the imperative for prioritizing the foundational constraints, the importance of innovation and the need to create an enabling environment to promote to promote financial inclusion.
The CBN said five priorities would now be most crucial to increasing financial inclusion in Nigeria including creating an enabling environment for the expansion of DFS, enabling the rapid growth of agent networks with nationwide reach, harmonizing Know Your Customer (KYC) requirements for opening accounts/mobile wallets on all financial services platforms.
The other drivers would be create an enabling environment to serve the most excluded as well as to improve the adoption of cashless payment channels, particularly in government-to-person and person-to-government payments.
Sunday Salam-Alada, Director, Consumer Protection Department, CBN who also spoke at the launch said despite the strides towards fostering financial inclusion, significant challenges exist.
Prominent amongst these challenges are dearth of financial literacy and awareness amongst consumers and a general lack of confidence in dealing with financial institutions.
He said these issues can only be addressed through robust financial literacy and consumer protection programmes since if consumers are not adequately protected by constantly having unresolved issues with their financial services providers, they are bound to be apathetic towards the system.
He said the CBN is now making significant efforts to ensure that financial consumers are adequately protected like its helpdesk which has helped recover over N68billion on behalf of bank constomers.
He said in the area of illiteracy and lack of awareness, the CBN has been implementing financial literacy programmes.
Africa Finance Corporation (AFC), one of the leading infrastructure development finance institutions in Africa, has announced to invest in the Nachtigal Hydro Power Company (NHPC), located 65KM north of Yaounde in Cameroon
The US$1.37bn power generation project will consist of a 420MW hydro-electric power station as well as a 50KM transmission line. The financing structure will take a 76:24 debt to equity ratio, with AFC providing US$56.94mn in debt and an additional 18-year interest rate swaps of up to US$85.41mn. Construction is expected to commence by the end of 2018.
Other lenders participating in the investment consortium include the International Finance Corporation, European Investment Bank, Proparco, Société Générale and Standard Chartered.
Electricité de France International has a 40 per cent stake in NHPC, with InfraVentures, the World Bank’s infrastructure project development fund and the government of Cameroon each holding 30 per cent stakes.
This investment into Cameroon’s power sector comes following consistent growth in the demand for electricity across the country for both domestic and industrial use. For example, during the 2012 – 2016 period, demand grew at a Compound Annual Growth Rate of 7.6 per cent, from 4.2TWh to 5.7TWh in the grid to which Nachtigal will connect. Currently, demand in the grid to which Nachtigal will be connected is expected to more than double from 5.7TWh in 2016 to above 13TWh by 2030.
At the same time, Eneo Cameroon SA, the country’s main electricity company, and off-taker to the NHP, has delivered significant operational improvements. This has consequently meant liquidity support for NHPC is stronger than it was for the Kribi Power Development Corporation IPP, which attracted a similar group of lenders.
As is the case with all projects Africa Finance Corporation participates in, the decision to go forward with the Nachtigal hydro project was based on its potential to drive economic development while also considering its wider impact. The NHPC will be the cornerstone of Cameroon’s low carbon development plan and was selected because it was ranked as the best future hydro project to be developed in the LCDP. AFC, the sponsors and lenders will develop the project in compliance with national and international best practices in terms of environmental and social management and infrastructure building.
Samaila Zubairu, president and CEO to AFC, commented, “Cameroon is a textbook example of a nation that has, in recent years, demonstrated a deep-rooted commitment to surmount its power deficit challenges by successfully creating a highly investible sector.”
“Moreover, with the International Monetary Fund (IMF) having raised Cameroon’s economic growth outlook to 4.2 per cent from 2017’s 3.2 per cent, we will be investing in the country’s essential infrastructure that will help unlock further economic growth in the years to come, and for the people of Cameroon reach their developmental aspirations.”
In a bid to boost regional integration and trade in East Africa, the African Development Bank Group has approved US$322m in loans to Burundi and Tanzania, mostly for road upgrades.
A major component of the package is paving a 260km gravel road linking Kabingo, Kasulu and Manyovu in Tanzania.
The package also includes: A 45km road improvement project between Rumonge-Gitaza in southwest Burundi;A one stop border post between Tanzania and Burundi at Manyovu/Mugina Border; New health centres, schools and community water sources; and rehabilitation of other rural and urban roads.
“The project will fundamentally enhance the mobility of goods and services for the people in Burundi and Tanzania”,said Gabriel Negatu, director general of the bank’s East Africa Regional Development & Business Delivery Office.
“The improved transport will bring additional benefits for the two neighbouring countries, including empowering women and youth for whom new market centres will be opened and other economic activities will increase.”
The projects are aimed at strengthening links between the Port of Dar es Salaam to markets in Tanzania, Burundi, Rwanda, Uganda and the Democratic Republic of Congo.
Road upgrades are due to be completed in 2023.
The project coincides with the bank’s ten year strategy , running from 2013 to 2022, focusing on “assisting its regional member countries achieve more inclusive and greener growth” and “including integrating Africa and improving the lives of the people of Africa”.
President Muhammadu Buhari has said that in the next four years, his government would achieve an additional 4000 megawatts power generation to add to the already existing 7000 megawatts.
By this, President Buhari hints that the total power generation would stand at 11 million megawatts, which is the fastest in the history of the Nigeria State.
Speaking at the Kano ongoing 39th Trade Fair program, President Muhammadu Buhari, who was represented by the Jigawa State Governor Abubakar Badaru, explained that the government understood the fact that without effective energy generation, there will be no required growth in the nation.
He said, “We actively give maximum concentration to power generation in the country and that could be seen from our efforts in improving greatly from less than 2000 megawatts when we assumed office to whooping 7000 megawatts”.
President Muhammadu Buhari noted that in the ” Next Level” agenda, Nigeria will see a tremendous progress in the infrastructural development with roads, railway and agricultural revamping.
The President added that already, his government has released N1.62 trillion for the infrastructural development across the nooks and crannies of the country. This, he explained, will be used prudently to make heavy change in the nation. Buhari notes that already, Nigeria is witnessing Railway revolution with every state capital targeted to be connected and fully linked.
“We have so far completed over 220 abundant roads across the nation and added 130 new roads all across the federation which have been slated for completion in the next level”.
Governor Abdullahi Umar Ganduje noted during the 39th Trade Fair with the theme “Ease of doing Business in Sustainable Economic Development,” that his government is investing heavily in security because without security, no meaningful economic and commercial activities could be achieved.
Governor Ganduje, who commended President Buhari for ensuring peace in Kano after the gory experience of Insurgency, noted that today, the ancient city is one of the most peaceful across Nigeria and with conducive environment for business activities.
The Kano Governor noted that after the devastating fire incidences across Kano Markets, the state government is building solar power to save the markets from the unfortunate incidents. He added that the government is complimenting the Federal Government power generation by building Challawa and Goje Dam Hydro Private Power generation.
Nigeria’s economic performance has been lacklustre since 2015 when the country slipped into its first major recession in 25 years.
GDP growth declined from 2.11 percent in Q4 2017 to 1.95 percent in Q1 and 1.5 percent in Q2 of 2018.
The manifesto released by PDP presidential candidate, Atiku Abubukar, mentions some of these problems, stating, “Nigeria’s economy is uncompetitive, undiversified and foreign direct investments are in decline.”
The challenge for the next president (whoever it is may be) would be to navigate these problems amid a still fragile recovery, little or no elite consensus on the way forward and a short electoral cycle (four years) that discourages reforms.
Key economic sectors are dragging owing to what many analysts call ‘absence of economic direction’.
The major economic challenge facing Africa’s biggest economy is poor ease of doing business environment. Nigeria ranks 115th out of 140 countries in World Economic Forum (WEF) competitiveness ranking, which is worse when compared peers such Brazil, South Africa and Turkey.
In 2016, Nigeria embarked on several reforms—ranging from ports to taxes— to attract new investors and retain existing ones. This culminated into the establishment of the Yemi Osinbajo, the vice president-led Presidential Enabling Business Environment Council (PEBEC), whose reforms moved Nigeria 24 places in the World Bank Ease of Doing Business index, from 169 to 145 in 2018.
However, Nigeria dropped a spot to 146th among 190 countries in the World Bank’s 2019 Doing Business Index despite an improvement in ease of doing business score from 51.52 to 52.89.
In 2017, Foreign Direct Investment returned $987 million in 2017 as against $4.7 billion in 2014.
The FDI slumped by 29 percent to N379.84 billion in the first half of 2018 from N532.63 billion in the corresponding period of 2017 owing to the closure of two global lenders, according to CBN 2018 half year data.
Foreign portfolio investors who brought in N437.14billion into the stock market as of August took N469.71billion out of the same market, according to the trading figures from major custodians and market operators on their Foreign Portfolio Investment (FPI) flows. Total transactions on the Nigerian Bourse declined from January high of N394.44billion to N133.84billion in August.
Analysts say portfolio inflow into the Nigerian equity market will remain subdued over the rest of the year. They angle their expectations on political uncertainties, the trade spate between the United States and China.
“Higher yield in developed economy and tensed political climate in the country were major reasons for investors pulling out despite the relative stability in exchange rate”, Damilare Asimiyu, economist and research analyst at GTI Group said in a recent note.
Two foreign banks—HSBC and UBS— have exited the country, bringing the number of foreign banks to eight as of end of June 2018, according to CBN.
In 2014, Procter&Gamble set up a $300million diaper line in Agbara, Ogun State, which was tapped as biggest US non-oil investment in Nigeria.
Four years after, the company has packed up, citing restructuring as its main reason. But those familiar with the company told BusinessDay that the company had to shut down its Agbara plant due to high production cost incurred at the plant.
Local manufacturers spend billions of naira annually on energy, resulting in high production cost and skyrocketing prices of goods. Manufacturers spent N51.35 billion on alternative energy sources in the second quarter (H2) of 2017; N66.03 billion in the first half (H1) of 2017; N62.96 billion in H1 of 2016, and N69.99 billion in H2 of 2016, according to the Manufacturers Association of Nigeria (MAN).
“It is no more news that manufacturers in Nigeria currently self-generate over 13,000MW through alternative sources of energy in order to stay afloat. In fact, cost of alternative electricity generation alone constitutes about 40 percent of our production cost. With such high costs, made-in-Nigeria products will hardly be competitive,” Frank Jacobs, immediate past president of MAN, said at a special interactive forum on Eligible Customer Regulation of the Nigeria Electricity Regulatory Commission (NERC) in June 2018.
Number of taxes payable by businesses across the country is 54 as against 37 in 2014.
The sudden suspension of the Export Expansion Grant in 2013 and continued delay in its implementation since Buhari came on board in 2015 have axysphiated exporters, making their products uncompetitive in the global market. The scheme was originally meant to cushion the effect of high production cost for exporters in order to make them competitive, but exporters are now left with little option as some of them like RN Global have closed shop.
Manufacturers say that high interest rate, necessitated by high inflation rate, is squeezing them.
Results of survey conducted by MAN shows that the average interest rate banks charged manufacturers in the second half (H2) of 2017 was 23.05 percent as against 22.65 percent in first half (H1) of 2017 and 21.4 percent in H1 of 2016.
Nigeria’s infrastructure state has worsened, with roads to Apapa and Tin Can ports in Lagos almost inaccessible.
GE, last week, pulled out of the consortium that was going to invest $2.0 billion into the country’s railway into Apapa.
The country dithered for two and a half years until GE sold its global transport business, resulting automatically in a pull-out of the deal it had with Nigeria.
Nigeria loses N6.7 trillion annually to the state of the ports, according to a latest report released on Tuesday by the Lagos Chamber of Commerce and Industry (LCCI).
A breakdown of the numbers shows that Africa’s biggest economy loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis.
“The concessioning of Onitsha seaport should be finalised, while government should improve the security situation along and within the Warri port in order to ward off militants and touts. Stakeholders request that government should approve and publicise a bouquet of incentives to importers and exports that patronise ports outside Lagos,” Babatunde Paul Ruwase, president of the LCCI, said in a press conference.
Homeowners insurance is a contract designed to protect you as a homeowner against sudden and accidental losses. The home insurance policy is a contract between the homeowner, also known as the insured, and the insurance company.
The contract creates an agreement that, in exchange for the premium paid by the home owner, the insurance company will compensate the homeowner for unexpected, sudden, and/or accidental damage or disasters that occur to the home, and/or the contents of the home, as agreed upon in the policy wording.
Homeowners insurance protects a homeowner’s assets and ensures that a covered loss, risk or disaster will not leave them in financial distress. Whether you are looking to buy insurance as a first time homeowner or need information to make sure you are getting the best value for your money, or looking for help to understand your policy, here are some basics about homeowners insurance.
How Does Homeowners Insurance Work?
Your insurance policy is a contract that agrees to cover you for specified risks or perils that may happen causing you financial loss.
In exchange for a premium (the amount of money you will pay for your contract) the insurance policy forms an agreement that the insurance company will compensate you for losses as described and detailed in your home insurance policy.
All the terms and conditions of your policy dictate what is covered, how a claim will be paid, and what is excluded or limited. You can find the basic coverage information of your insurance contract on the Declaration Page of your Insurance Policy.
The insurance policy contract clearly outlines definitions and special limits to let you know what to expect as an insurance policy holder.
There are many factors that determine how much home insurance costs. The cost can vary, based on the following three factors:
Your personal information including your age, occupation, if you have insurance history, your credit rating, if you belong to any organizations that have group insurance plans or discounts, your lifestyle and use of your home.
The Information related to the location of your home, the loss experience in the area where your home is located and anticipated risk factors about where your home is physically situated impact insurance rates.
The details about your home, including renovations, the year of construction and the materials used in building your home as well as any additional security you have at your home.
Your personal insurance history and information usually allows for discounts to be added to a policy, so even if you compared the price of insurance for two identical houses right next to each other, the price might be different if the people who own those houses have different personal situations.
Is Home Insurance Worth It?
Home insurance provides people who own their home a valuable resource to protect their investment and financial stability if a situation comes up where there is sudden and accidental damage to your personal property or house itself. It also protects you by providing liability insurance that arises as a result of your home ownership, or even as a result of your actions and activities as an individual worldwide.
How Much Home Insurance Do You Need?
Your home insurance needs to have enough coverage to provide you with compensation for financial losses in 3 major categories.
(A)The value of your structure, or building. Also known as the dwelling insured value. This does not include the cost of the land.
(B) The value to replace your contents or personal property. “Personal property” encompasses the things that are not part of the structure — the things you brought with you when you moved into the home, or furniture and other property you bought and keep in your home.
(C) Cost of additional living expenses. These are expenses that you would incur as a result of a claim if you were unable to live in your home due to a covered loss or insured peril while the insurance company repairs your home when it is unliveable.
A home is unliveable when there is no running water or electricity, or when there is destruction that makes it impossible to live in the home during repairs. Each insurance company may define this differently or may assess the need to move out on a case-by-case basis.
Other Home Insurance Coverages
There are other coverages that can be included in home insurance policies for example a homeowner policy will also include additional structures as a percentage of the building amount. As an overview, the above are the base sections of coverage that you would want to focus on in order to figure out how much home insurance coverage you need.
Additional coverage can be added by endorsement if you need more coverage than is included in the home insurance package. Home insurance policies usually have special limitations on certain items, like jewelry; if after reviewing your policy special limitations there’s property you want to make sure is covered, then you may decide to add insurance rider.
Water Damage and Home Insurance
Water damage is a tricky coverage when it comes to home insurance. Some water damage is covered, and some coverages can be added by endorsement, such as sewer back-up coverage; other water damage. When choosing a home insurance policy be sure and ask about the different types of water damage that are included in your policy and find out which ones you can add coverage for by optional endorsement. Water damage is an increasing risk due to changing weather patterns and aging infrastructures.
Who Is Covered By a Home Owner Policy?
In your insurance policy, there is a definition of the insured. Under this definition you will usually find the description of who is covered under your insurance policy. The policy usually will specify that the named insured and spouse or domestic partner. (through common law or marriage) are considered insured under the policy. Along with this, the dependent children of the insured while living at home may also be included.
Who Is Not Covered Under a Home Insurance Policy?
Domestic helps, relatives not included in the definition of the insured, temporary house guests and roommates are not included or covered under a home insurance policy because these people do not fit into the definition of the insured.
Insurance If You Rent Your Home
If you rent your home and do not own it, whether it is a house, an apartment or a condo, then you need renters insurance.
If You Rent Out Your Home
Home insurance is intended to insure a home being used as a primary residence. If you rent out your home, then a homeowner policy is not the right policy for you, and you may not be insured if you have a claim that arises while the home is being rented out.
Home Business Activity and Home Insurance
If you use your home for business, you should speak to your insurance company to find out if they can add a rider for home based business. Home insurance is not intended to cover business use, so using your home for business and not mentioning it to the insurance company could render your coverage null and void. Not reporting changes on a home policy or in your personal situation may cause the insurance company to cancel your policy.
Home Insurance for Condo or Co-op Owners
If you own a condo or co-op, then you do not need homeowner insurance; you need condo or co-op insurance because condos and co-ops take into consideration many of the special circumstances that exist when you own only one unit of a building, or shares in a cooperative. For example, one coverage that is specific to a condo owner but would not be included in a homeowner policy is loss assessment, or contingent insurance.
What “Perils” Are Covered By a Home Insurance Policy?
When you buy a home insurance policy you have the option to choose what kind of coverage you want. There are two basic concepts of coverage in a home insurance policy:
Understanding these two concepts helps show the difference in the level of coverage your different options in insurance policy can offer you since they have significant differences in coverage levels:
An Open Perils policy covers you for “all risks” unless they are excluded.
A Named Perils or Specified Perils policy covers you for very limited risks. The risks are usually limited to 16 core “disasters” that could happen to you, but then after that, anything else is not covered. Some policies may provide less coverage, such as the HO-1 form.
Be sure and ask if the policy you are buying covers open perils on the insured dwelling structure and on the contents, or only on the insured dwelling. This makes a difference in what you get paid in a claim.
How Does a Home Insurance Policy Pay out in a Claim?
The basis of claims settlement listed in your policy wording will tell you what you can expect in a claim as far as compensation goes. The two basic forms of compensation in a claim are:
Actual Cash Value:This is the cost of replacement, less the depreciation. This means that you will not get enough money to replace the home or items if the basis of claims settlement is Actual Cash Value. This is the least desirable form of claims settlement.
Replacement Cost:Replacement cost provides you with compensation for replacement of the insured items in the loss. Find out if this applies to your building and contents. This allows you to replace what you have lost after a claim and get back to where you were at before the loss since you will get the money to replace.
It is important to read your policy wording about the basis of claims settlement when you get a home insurance policy to make sure you understand the provisions in the contract, exclusions and limitations.
High-Value Home and Specialty Home Insurance Policies
High-value homes, historic homes, and homes with special features may qualify for high-end home insurance. If you have a home with high value or above-average construction and quality you may want to look into a specialty high-value home insurer. High-value home insurance offers the broadest coverage available, but comes at a premium cost.
The benefits may include full replacement value, with no obligation to replace policies (cash-out options), by-law coverage, greater allowances for additional living expenses and coverage for higher limits of jewelry, fine arts, antiques or items that can not be replaced due to their inherent nature. These kinds of items are not covered easily on a standard home policy due to limits and exclusions.
Do All Homeowners Have to Have a Home Insurance Policy?
No, all homeowners do not have to have a home insurance policy. However, if you have a loan or a mortgage and you do not fully own your home, the mortgage lender may require you to have home insurance because they want to protect the money they have given you as part of the loan. They may require you to provide a binder of insurance before granting your mortgage or loan.
Home Insurance Policy Guidelines: Always Check Your Own Policy Terms and Conditions
It is always best to have a discussion with your insurance representative about how claims work with your insurance policy since conditions vary from insurer to insurer, concepts discussed in this article are the basic guidelines you need to help you ask the important questions about your coverage.