Buying a home is the single largest investment for most people. As you tend to care for all your precious valuables, so why not create a backup plan for your house?
A home insurance cover is a perfect way to ensure its safety in case of an unfortunate event like a natural disaster or even man-made peril. Further, the financial loss can be so high that it can wipe off your entire life’s savings.
Insurance can at times confuse a layman and that makes it necessary to understand them before starting to shortlist suitable insurance covers. This article helps you demystify these complex home insurance terms to make a hassle-free purchase decision. Read further to know more –
Sum insured: It is the maximum amount of liability which the insurance company assumes for your house. In no case, the insurer pays an amount more than the sum insured. To simplify, the sum insured is the amount that the insurance company pays if your home suffers any damages due to the events specified in your policy document.
Premium: Premium is the amount you pay to the insurance company to obtain coverage for your home. This amount is required to be paid at the beginning of each policy period. Home insurance quotes are based on various factors like sum insured, age of the structure, the type of coverage opted, amount of risk involved, location of your home and more.
Policy tenure: It is the period during which the policy is active and provides coverage against unexpected contingencies as mentioned in the policy document. This period commences on the policy start date and terminates at midnight on the policy end date as specified in your policy document.
Deductible: Deductible is an out-of-pocket expense that you need to pay when raising a claim. Akin to other types of insurance, home insurance terms pre-determine the deductible amount. It is recommended you purchase a plan with the lowest deductible to lower your out-of-pocket expenses at the time of claim.
Reinstatement value: The replacement cost of replacing the damaged property at its current market valuation is called the reinstatement value. Reinstatement value pays a reimbursement to restore the property in its original condition. Any reconstruction required should be done at the same place or at another where property value is equivalent. This value is subject to the sum insured of your policy.
Agreed value: Agreed value settlement is where the insurance company pays a predefined amount mutually agreed by you and the insurance company. Note that agreed value settlement does not account your property’s current valuation at the time of settlement of the claim.
Indemnity value: Similar to reinstatement value, the cost of reconstruction is paid by the insurance company. The only difference is that depreciation is considered when calculating the reimbursement amount.
Coverage: Coverage of your policy are the various cases when your home insurance cover kicks in. A thorough evaluation of the coverage will help you in the selection of a suitable policy that ensures comprehensive coverage. To aid you in this process, you can make use of a home insurance premium calculator that can further simplify the selection of add-ons and an appropriate insurance policy.
These are some terms that will help in simplifying your purchase decision for home insurance plans. Familiarise yourself with the varied policy terms and select a suitable cover based on your requirements.