A home is one of the biggest investments of a lifetime. It takes a lot of effort, both financial and emotional, to be able to buy your own home. But some risks can destroy our home.
Where there is risk, there is insurance. For the risks of our homes, there is a home insurance. Most people purchase this coverage with their home loan. It ensures to some extent that their finances are free from various housing related risks such as fire, calamity or theft. But many still don’t know how home insurance works.
Here are some important points about home insurance that you need to consider.
What is home insurance?
Home insurance is taken out to protect against financial loss caused by damage or loss to your property. There are two variants of home insurance: one that covers loss of the contents of the property and the second that covers losses caused by damage to the structure of the property. Contents insurance covers electronic goods, furniture, jewelry and other valuables. Structure insurance includes guarantees for property damage due to natural disasters.
Is home insurance compulsory?
It is essential to have home insurance to protect your investment. However, it is not compulsory to take out home insurance as neither the law nor regulatory authorities like RBI or IRDAI have made it mandatory. Many people mistakenly think that it is mandatory to take out home insurance when taking out a mortgage. The fact is that there is no such constraint. It is your decision that you can make after deliberating on the pros and cons.
Types of home insurance
Decide on the type of home insurance coverage based on the location of your home and the type of property. For example, if you live in an area prone to natural disasters, consider purchasing structural home insurance. If you live in a self-contained property that is not prone to natural disasters, you may prefer to purchase contents insurance only.
Adhil Shetty, CEO of BankBazaar, explains: “When choosing a home insurance policy, check the exclusions and the extent of cover it allows. Compare the different policies available in the market based on factors such as the size of the premium, the variety of additional covers and their suitability.
Quantum of home insurance coverage
When deciding on the size of home insurance coverage, first assess the value of your property. You can contact an expert to estimate the value of your property. If you are considering getting contents insurance, make a list of all valuables that, if lost, could cause you financial damage. Assess their values. You should read the terms and conditions of the insurance policy to find out which items claims are not available for.
You can insure your home for cash value or replacement cost. In actual cash value option, you get the claim on the replacement value of the property after depreciation, while if you opt for replacement cost, on a claim, you will be entitled to receive the value of item replacement.
Review your home insurance every year
Review your home insurance needs annually so your home doesn’t remain underinsured as your home’s value increases. “Over time, your needs for the type and size of home insurance may change based on a change in your income and the value of the contents of your home,” Shetty points out.
Avoid giving false information
Do not conceal any important information from the insurance company. For example, while giving building details, you must provide the exact size, height, map, location and floor plan of the building. If you provide details of contents, you must provide exact counts, weight/size etc. and keep invoices ready as proof. You can also purchase different add-ons depending on the needs and value of the home insurance.
Protect your home
* A variation of home insurance covers loss of property contents
* The second variant covers losses due to damage to the structure of the property
* It is not mandatory to take out home insurance when taking out a mortgage
* You can insure your home for cash value or replacement cost