There have been numerous instances where you bought an insurance policy in a hurry and later when it was time to use, realised it does not cover that one thing you sought. But this is not the case when you buy a policy with detailed consideration about your requirements and coverage needs.
Home insurance certainly does not top the list of insurance covers that you might buy, but is definitely a critical coverage to consider. Since most lenders make it mandatory to purchase a home insurance policy when you avail finance, there is an increasing trend for home insurance plans. Just like health or motor insurance plans, here are some considerations to keep in mind when you are on the lookout for a home insurance cover –
Type of coverage
The first and foremost consideration to decide upon is the coverage of your policy. Most commonly there are two types of coverage that you can buy – coverage for the structure and its contents.
A structure insurance is the where only the structure of your home is covered. Hence, the compensation is provided by the insurance company for any damages to the construction of your house. However, there is no coverage for furniture and other contents. For that you need to purchase a content coverage where it includes the appliances as well as furniture as provided at the time of policy purchase. Purchasing content insurance along with coverage for structure increases the home insurance quotes since it increases the policy coverage.
With a structure and content home insurance, a comprehensive coverage is available for your home offering protection against natural and man-made perils.
Once you have decided on what type of policy you want to purchase, next comes on selecting how the compensation shall be paid. There are essentially two ways in which the amount of reimbursement is calculated by the insurance company.
The first method is the depreciation cost basis. Here the insurance company determines the pay-out taking into consideration the cost of the items. However, the depreciation on such items is reduced thereby lowering the amount of pay-out. This depreciation is generally at the rate of 2% for a period of 50 years.
The second method is reimbursement basis where the amount of compensation is calculated on the cost required to replace the damages. Since it pays back the current value of the items, it is broader in coverage and thereby steeper in terms of premium. This method negates the depreciation, but the pay-out is made by the insurer only after the replacement is completed.
Deductibles of your policy
Another consideration when buying a home insurance cover is the deductible of your policy. It is that amount which you, as a policyholder, are required to pay at the time of claim. This as a result has an effect of increasing the out-of-pocket expense at the time of the claim but lowering the premium for your coverage. Thus, must be considered based on how much you can bear in the event of damages.
With these considerations, it is simple to decide which home insurance policy is right for you. While there are myriad plans to select from, a home insurance calculator can help to compare them and purchase a policy within your budget. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.