A recent survey has revealed that home insurance is one of the least subscribed to products. However, considering that the number of home buyers is increasing, the trend needs to be reversed. Perhaps awareness, of the lack of it, is what is holding consumers back from opting for this necessary security.

Basic home insurance policies cover either the structure of the building or the contents, or both.

Policies that cover the structure safeguard the buyer against damage due to both manmade and natural causes. The manmade causes include fire and vandalism, while natural causes could encompass floods and earthquakes.

Contents of the home can be protected against these dangers, as well as from burglary. The contents of the home cannot be selectively protected normally – that means that you must insure your electronic gadgets as well as your furniture, for instance. Also, usually, the land on which the house stands is not included in the policy.

For those living in rented homes, it make sense to simply insure the contents of the house, while those who stay in their own homes will do well to insure both structure and contents.

Some policies come with packaged features, others can be customized. When choosing a policy, assess the possible dangers your home may be subjected to, and ensure that all these possibilities are covered – buying add-on covers if required.

Home insurance policies can be on the basis of reinstatement value, market value or agreed value. The reinstatement option gives you funds for replacing damaged or lost property. It is a reasonable proposition. The market value option is the least desirable, as it is subject to depreciation of the value of the items covered. The agreed value is the best option – it is arrived at on the basis of an understanding between the insurer and the insured on what is a fair amount. It is, however, not usually offered by insurance companies.

A rough estimate of the amount of cover you require may be obtained by multiplying the floor area of the house by the current cost of construction, and adding up the original cost of all the items in the house that you want to insure.

There are three methods by which your house can be insured: reinstatement value, market value and agreed value. The best of these is the agreed value option. Here, the value of the house and its contents is agreed upon by the insurer and the insured. Under this option, you can even get the cost of land included. The second best option is reinstatement value. Here, what you are paid is the cost of replacing the product. The worst option is market value where you get a depreciated value of the items covered. “Only a few insurers offer the agreed value option.

Reinstatement value is also a good option. I would not advise anyone to go for the market value option,” says
One last point – after buying a policy, review after every three to five years, to ensure that the sum insured is adequate, keeping in mind rising costs of construction, and newer products that may be available on the market.

Source: http://www.business-standard.com


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