How Does A Home Insurance Plan Work? A Complete Guide

 

If someone asks you what the most expensive asset that you can have is, the simplest answer will be your house. The place you have invested your hard-earned money to raise the walls and emotions to make it home is priceless. However, not many of us realize the importance of home insurance policy that can save you from monetary loses associated with the structure and personal possessions against possible threats such as fire, natural calamities, theft, breakage and more.

Home insurance policies are designed to provide cover to the home of an individual, personal possessions, and third party liabilities. It also provides cover to the third party in case of bodily damage and medical treatments in case anything happens at your premises.

So, how it works?

To understand how home insurance plan works, you need to know every possible detail associated with it. Let’s start with the basic reasons why you should get a home insurance plan:

  • For coverage against natural and man-made calamities: Nature is ruthless and can strike anytime. If you are living in earthquake or flood-prone areas, home insurance plans become even more important. These policies also save you from theft, vandalism etc.
  • Cover for temporary living arrangements: In case you have to shift to temporary accommodation amid damage to your home, the insurance company will provide financial support.
  • Cover for loss/damage of personal belongings: The insurance policy will cover damage or loss of personal belongings such as ornaments, furniture, appliances and more.
  • Cover from legal liability: In case any injury or damage caused by you or your family to the third party within or confined within your property, the insurance policy will cover it. For example, if someone falls and gets hurt during your house party, the medical expenses etc. will be covered by a home insurance policy, thus saving you from any legal problems.
  • Support for home loans: Banks ask the homeowners to buy insurance for the home as a pre-condition for granting the loan. It is one of the main requirements to be eligible for the home loan.

The basic structure of home insurance

There are two aspects of home insurance policies. The first type covers the structure of the building, while the other covers the content of the building. The Building Insurance Provides cover against the damage of the structure while the content insurance covers the household items. The valuation of the items is based on the market price. You can choose either one or both of them while buying the home insurance plan.

  • Reinstatement value: The sum assured in case of insurance based on reinstatement value covers the cost of construction and not the cost of labor, material or reconstruction.
  • Indemnity value: The sum assured and the amount paid will be determined in case of insurance based on indemnity value covers by deducting depreciation from the reinstatement value.

When you buy a home insurance plan, it will cover the damage caused by man-made and natural disasters that includes fire, lightning, explosions, riots, burglary etc. However, terrorism cover, rental for alternative accommodation etc. are considered as riders or add-on so you may have to buy them by paying an additional cost.

What does home insurance policy not cover?

Just like any insurance policy, home insurance plans also have some limitations and exclusions, such as:

  • Damage caused by radioactive contamination or ionizing radiation.
  • Revolution, civil war, insurgency or rebellion.
  • Military arrack.
  • Minor damages including cracks, termite infestation etc.
  • Intentional damage.
  • Act of terrorism (if you haven’t bought the rider)
  • Artwork or collectibles.
  • Cash.

It is important to read the documentation clearly and customize your home insurance plan accordingly.

Some important points to keep in mind while buying a home insurance policy

  • Choose your sum assured only after including your property and personal possessions.
  • Compare different insurance plans and see which will suit you the best.
  • Make sure to check online and if possible offline reviews of the plans and the insurance company.
  • Make sure the insurance provider is a registered company and has a license to provide a policy.
  • Read the fine print carefully.
  • Understand the claim process as it varies from company to company.
  • Do not hide any information that may lead to the rejection of the claim.
  • Make sure to keep the receipts of your belongings and the invoices of repair work etc. in case you have to file a claim.

Final words

There are hundreds of reasons that may result in damage to the home or your belongings. In some cases, the damage may happen to a third party. In such cases, the monetary or legal liabilities can put you in financial trouble. Home insurance policies are the ideal way to stay safe from such losses. Such insurance plans not only save you from the natural calamities but also man-made ones.

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