A home insurance policy protects you and your house against unforeseen calamities. The need for home insurance is increasing due to various factors. Rising property values, increased occurrences of natural disasters, and a growing awareness of the financial risks are the key contributors. Also potential damages or theft have led homeowners to seek protection for their most valuable asset, their home.
However, while buying a home insurance policy there are certain aspects that one needs to keep in mind.
Let’s take a look at the key points one should consider while buying a home insurance policy –
Type of Coverage
Home insurance has two coverage variants – building (structure) insurance and contents insurance.
Building insurance covers damages to the structure due to natural or man-made causes. The walls and roof together make up the civil structure.
Contents insurance, on the other hand, covers contents inside the home such as household appliances, electronics, furniture and fittings, and personal belongings like jewelry. One can opt for either building insurance or content insurance or both.
Homeowners should opt for both insurance types to avail of a comprehensive policy. However, tenants need to opt only for content insurance as they are not liable to pay for structural damages.
Inclusions and exclusions
It is crucial to explore the inclusions and exclusions of your home insurance policy because it gives one a good idea of what a policy covers. The inclusions usually are fire and related incidents like lightning, storm, floods, and riots. Further, the policy also covers the loss of personal belongings due to burglary or theft.
Meanwhile, the policy does not include deliberate damage to a property, losses incurred due to war, or depreciation and wear and tear. Home insurance policies also do not cover pre-existing damages.
Additional coverage benefits
Home insurance plans come with options to enhance the scope of coverage. You should look for optional coverage benefits and pick the relevant ones. For example, you could buy an omission to ensure your content. This will allow you to claim for items that you may not have been insured for or bought after buying the insurance. You could also buy an escalation extension that will actually allow you to claim about 10% higher than the sum assured if needed. However, one must remember that add-on coverages invite additional premiums.
Nature of Coverage
Home insurance policies are offered either on the basis of market value or as per terms of reinstatement.
The claim amount is calculated after deducting depreciation of value if the insured is considering the market value. However, in the case of the reinstatement format the insurance company pays for the cost of reconstructing the house.
The contents insurance type works on a replacement basis. This means new contents replace the damaged or stolen ones.
Being underinsured
If the insurance policy value is less than the amount spent on constructing your house you are underinsured. In such a case, the insurer will reduce the total claim payable in proportion to the coverage amount.
For instance, the cost of constructing your house may be Rs 1 crore but the insurance coverage amount is only Rs 50 lakh. This is a case of underinsurance and the insurer will halve the claim amount. In such cases, the insurer also applies the average clause which means that this reduction in claim amount takes place across the board. It is possible to buy an extension that allows for a certain amount of underinsurance. However, these decisions on extensions need to be taken when you buy the insurance.
It is necessary to review the home insurance cover every year. The value of a house usually increases with every passing year.
