Home insurance: What is it and how does it work?

Owning a house is every person’s dream. However, it does not end at just that. You also need to protect the property purchased with your hard-earned money. Hence, buying home insurance is of utmost importance for preserving the value of your property.

We tell you all you need to know about what it is and how home insurance works-

1. What is home insurance?​

Home insurance also called home owner’s insurance, is a policy to secure your house and its contents. This is a type of property insurance offering coverage to your house from damages, loss and destruction to your building.

The insurance covers damages to the building from the following risks or perils- fire, lightning, explosion/implosion, storm, cyclone, typhoon, hurricane, flood and inundation, impact damage, landslide, overflowing/bursting of water tanks or pipes, accidental leakages from the automatic sprinkler, riot, strike and malicious damage, among others. The insurance also covers burglary and theft, which come under damage to the contents of the building.

Examine your insurance policy thoroughly to see the natural calamities and other risks included in the coverage and those which are excluded.

Read on to know how property insurance works.

2. How to calculate the sum assured?​

The rate of construction per square feet, the property area, and the location of the property are taken into account to determine the premiums and the insured amount. The Insurance Regulatory and Development Authority of India (IRDAI) lays down two methods for calculating the sum insured:

• Market Value –The Market Value is determined based on depreciation due to age and usage and the ongoing trend of inflation. In a market value calculation, the current cost of constructing a similar building is determined, and then the depreciation is deducted. Under this, the insured does not get paid a sufficient amount to purchase a replacement owing to the deductions due to depreciation.
• Reinstatement Value – It is the cost of replacing (or reinstating) the property with a similar one, but the replacement should not be superior to the insured property. This method is based on the principle of indemnity, wherein the insurer pays the cost of replacement.

3. How to make a claim?​

In case of the damage to your property, you need to make a valid claim by following a simple procedure. You must notify the concerned authorities like the police and fire brigade about loss or damage to your property due to the events included in your policy. You must also preserve any report or document issued by these authorities.

Intimate your insurance company and be ready with all the necessary documents. Besides the policy paperwork, you will have to furnish the reports issued by the police or the relevant authorities. This will further strengthen your claim and establish its authenticity. The insurance company will then send a surveyor to survey the damage and assess the loss. After the required procedures, the insurance company will either reject or approve your claim based upon its review.

With the fundamentals of home insurance clear, and knowing how a house insurance works you can now make an informed decision regarding the best insurance policy and keep your concerns about your property at bay.