Home insurance is a type of property insurance policy that protects you from the financial losses caused due to damage to your home due to unexpected perils. Thus, it acts as a financial cushion and covers the cost of damages to your house property due to natural calamities such as floods, fires, storms, etc., and man-made problems such as theft, riots, and others.
The question arises, do we really need a house insurance policy?
If we go back a decade, on September 18, 2011, at approximately 18.10 IST, Sikkim and North Bengal were struck by a powerful earthquake with a magnitude of 6.9, popularly known as the “2011 Himalayan Earthquake.” According to sources, 111 lives were lost in the earthquake, the majority of whom lived in Sikkim close to Singtam. Economic losses also took place as a result of the collapse of numerous buildings in Gangtok.
Another horrifying tragedy, popularly known as the “Gorkha Earthquake,” followed in 2015. Around 9,000 people lost their lives, while more than 21,000 individuals were injured. The 7.8-magnitude earthquake’s epicenter was in Nepal, but it was also felt in the neighboring states of India.
Home insurance can be a blessing in disguise in the context of such tragedies taking place all over the world and to prevent severe financial losses brought on by such natural calamities.
What types of home insurance policies are available?
- Home Structure/Building Insurance:
This kind of home insurance protects your home’s structure from any threats and dangers. Also, the insurance covers any permanent parts of the home. It covers the fixtures in the kitchen and bathroom as well as the roof and ceiling of the insured home. Some homes have sheds, outdoor rooms or dwellings, or garages. This kind of insurance is traditionally extended to these structures as well.
- Public Liability Coverage
If any guests or third-party assets are damaged within the insured’s home, this type of home insurance policy will cover it.
- Burglary & Theft
Any valuable belongings that are stolen from or damaged in the event of a break-in or theft at the insured home are covered by this policy.
- Contents Insurance
Not only the property which you have insured but also the belongings of the house, on which you would have spent a lot of time and money, deserve equal protection. This type of home insurance covers the possessions you have within your home against theft, fire, flood, and other unforeseen events that could cause damage or loss to them. Your documents, personal items, jewelry, television, refrigerator, etc., are all covered.It comes in handy when you need to replace the interiors of your home after it has been flooded or burned to the ground by a fire.
Now that you have a fair understanding of the advantages and different types of policies available, the question arises, how to determine the appropriate sum insured?
The term “sum insured” in the context of insurance refers to the maximum amount for which you would be reimbursed in the event of losses. It calculates the worth of your insured home as well.
The price of home insurance is determined by all or some of the following parameters:
- Plan Type: Whether you are insuring the building, the contents or both will affect the home insurance coverage. If you merely choose the building, the value of the home structure will be considered. The worth of jewellery and personal items will be taken into account while determining the contents. The value of both the building and the contents will be included in a plan offering complete coverage for both.
- Value of the Building: The worth of the building is determined by the cost of reconstruction rather than the market value of the property. The expense of rebuilding must be adequately covered by optimal coverage. The built-up size of the property and the construction rate per square foot will be multiplied to determine the building value.
For instance, if your home has a built-up size of 1500 sq. ft. and the cost of construction is Rs. 1,800 per sq. ft., the insurance amount for the building structure will be Rs. 27,00,000.
- Value of Contents and Jewelry: When estimating the cost of home insurance, you must also include the worth of contents and jewelry. The replacement costs must be adequately covered by the insurance.
Besides, you must evaluate the cost of your valuables in the house as well as the cost of liabilities to others. The cost of any extra living expenses (rent, etc.) you might have to pay if your residence becomes uninhabitable due to damage or ongoing repairs should also be taken into account when determining the appropriate amount of insurance.
Factors that affect the Home Insurance Premium directly or indirectly:
- Type of Home: What type of property do you live in – your own or rented? Is it a standalone residence or an apartment in a building? Your home insurance rate will be directly impacted by your home’s type and ownership status.
- How Old your Home is: Age is a major factor in deciding premium pricing in any insurance policy.
- How Big your Home is: Your house’s price per square foot directly and most significantly affects how much you pay for home insurance. It is because a larger home will have a higher insured sum and, thus, a higher home insurance premium.
- Home Safety Measures: We’re all obsessed with home security. So we go ahead and take various precautions to preserve our residence. This has a direct impact on and lowers your house insurance rate because it lowers the likelihood of your home being looted or, for example, helps prevent a fire.
- Additional Coverages: A standard home insurance policy only covers your residence and your personal property; it excludes coverage for jewellery. As a result, some home insurance policies give extra protection to cover expenses not covered by the basic policy. As a result, one’s premium is highly affected.