What are the things to look for when buying home insurance?
A home insurance policy comes in handy to protect your house against unforeseen calamities. However, when buying a home insurance policy, there are some things which should be kept in mind. Here is a look at the important things which should be considered at the time of buying home insurance –
- The type of coverage to be chosen
Home insurance has two coverage variants – Building (Structure) insurance and Contents insurance. Building insurance covers the damages suffered by the civil structure of the house due to natural or man-made causes. Civil structure includes the walls and roof. Contents insurance, on the other hand, covers the contents of the home which includes household appliances, electronics, furniture and fittings and your personal belongings like jewellery, etc. You can choose building insurance, contents insurance or both. If you are a home-owner, choosing both building and contents insurance in a comprehensive package policy is recommended. However, if you are a tenant, contents insurance should be chosen since damage to the building would not cause you any financial loss.
- The inclusions and exclusions
It is very important to explore the coverage inclusions and exclusions so that you know what exactly your policy covers. Inclusions such as fire and related perils like lightning, storm, floods, riots, etc. are covered in all home insurance policies. Moreover, loss of personal belongings due to burglary or theft is also covered. Common exclusions include deliberate damage to the property, loss by war, loss due to depreciation and normal wear and tear, pre-existing damages, etc.
- The available additional coverage benefits
Besides the standard coverage and exclusions, home insurance plans also have additional coverage options which seek to enhance the scope of coverage of the policy. You should look for the available optional coverage benefits and choose them if you require the corresponding coverage. Remember, an additional premium would be payable for each additional coverage chosen. (CD : Could you provide some real examples to illustrate these?)
- Nature of the coverage
Home insurance policies can be offered either on a market value basis or on a reinstatement basis. Under the market value basis, in case of a claim, the market value of the house, after deducting the age-based depreciation would be paid as claim. In case of reinstatement basis, however, the insurance company pays for the cost of reconstructing the house after damage. In contents insurance though, replacement basis works. Contents are replaced with new in case they are damaged or stolen.
- Being underinsured
You would be underinsured if the value of the insurance policy is lower than the cost of constructing the house. If, you are underinsured and the same is established at the time of claim, the insurance company would reduce the total claim payable in proportion to the coverage that you have availed. For instance, say the cost of constructing your house is INR 1 crore and you have insurance coverage of INR 50 lakhs. In such a case, the claim would be reduced by half as it would be treated as a case of underinsurance and the average clause would apply. So, it is recommended to review your home insurance cover every year as the value of real estate is dynamic and the value of your house property usually increases with time.
You should keep the above-mentioned points in mind when you buy a home insurance policy.