Your house is the pride of your heart, something you aspire for all your life. People insure their health and their cars, but they often forgo insuring their biggest material asset – their home. It is extremely important to make sure that you do not make this mistake. All it takes is one natural disaster to cause major destruction to your house and leave you in a huge financial hole.
But how can you be sure if you are taking the right home insurance policy, one that will secure your home, as well as its contents? We give the breakdown on how home insurance works, and you can choose the best policy for your home.
Types of Home Insurance Policies
Fire insurance policy: This is the basic home insurance cover, which protects your house against fire and similar perils such as lightning, storms, floods, and riots. Sometimes, such policies include coverage for earthquakes and landslides, but the insurer may charge extra premium for this. Under this policy, you can also purchase an add-on cover for protecting your home and its contents against acts of terrorism.
House Holders Package Policy: This is the comprehensive cover. Under it, your house is protected against fire and allied perils, and the contents of your home are covered as well. If you are only a tenant in the house, you can choose to cover only the contents and not the building itself. This type of cover also offers options that protect the contents of your home against burglary, damage, mechanical and electrical breakdowns.
Choosing Your Sum Insured
The total value of your house consists of land, building, and locality costs. Of these, insurance covers only the actual building cost. For instance, if your house is currently valued at Rs.50 lakh, and the building cost of this is Rs.20 lakh, then the policy will cover only Rs.20 lakh. Thus, if you own the land your house was built on, the insurance payout will enable you to rebuild. However, if you lived as a tenant in an apartment building, you will not be able to rebuild. In such cases, it is always advisable to select a housing society where the entire building has been collectively insured.
When purchasing a home insurance cover, you can either purchase on the basis of market value, or on reinstatement cost. However, you should note that the market value of your house is not the same thing as its resale value, since the resale value includes the value of the land and locality as well. Your insurer will only consider the market value. Plus, in insurance, the market value of your house is depreciated by your insurer, at the rate of 2% per annum.
On the flip side, when you insure your house on the basis of reinstatement cost, the insurer needs to cover only for the value of reconstructing the house, and therefore depreciation is not deducted.
Guard Against Underinsurance
Like any other insurance policy, your home insurance policy also needs to be checked every couple years to ensure that you are adequately covered. If you do not check this, you may end up being underinsured. If you need to file a claim in such a situation, the amount will be far less than what you were expecting.
Things to Know about the Claim Process
If you need to file a claim, be aware that the insurer will be checking the damaged items to gauge the validity and value of the claim. Thus, you must make the declaration properly, and also have proof in hand for the same. Remember that in situations where it is found that there was subsidized building, the building was not maintained well, or the construction was unauthorized, the insurer will be within his rights to refuse the claim.
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