For most people, their home is their biggest asset. It’s a place that gives them a keen sense of peace and security. But how many of us actually insure our homes?
Given the ring of uncertainties that surround us today, there is a renewed focus on protecting one’s home. And, it is in every homeowner’s best interest to brush up on some key information about protecting one’s property.
1. What is Home Insurance?
Typically, there are two types of home insurance policies – a basic fire insurance policy and a comprehensive policy.
The fire insurance policy covers your house against fire and other risks such as lightening, flood, storm and riot. Additionally, you can also secure your house against earthquakes, landslides, and acts of terrorism.
A comprehensive policy, or householder's package policy (HPP), covers the building structure and the contents of the house. Here, a tenant can choose to get standalone cover for the contents. There are also other add-on covers available that protect your house against theft, damage and electrical or mechanical breakdown.
2. Should I Opt for Market Value or Reinstatement?
You can either buy home insurance on the basis of market value (depreciated cost) or the cost of reinstatement.
When the sum assured is based on the market value, the cover reduces in time basis the depreciation. Typically, the building is depreciated by 2% per annum for a period of 50 years. While this cover may cost less, it may not be adequate to replace every valuable item that was damaged.
Reinstatement, on the other hand, is the cost of replacing something with a comparable quality item. In this case, reinstatement is equivalent to the value of reconstructing the house. For example, if an earthquake brings your house down, you will be provided with the funds required to rebuild. If you like, you can also choose to get reinstatement cover for items in your house as well.
3. How to Secure the Best Deal?
Most insurance providers will offer a discount when you take more than one policy from them – for instance, taking car and home insurance together may reduce the total premium to be paid. Opting for a longer tenure can also fetch you a healthy discount.
In most cases, installing burglar alarms and smoke detectors in your house can also lower your insurance premiums considerably. So, you can essentially save money while protecting your home.
4. How Do I Ensure I’m Completely Covered?
It would be wise to double-check the policy details and the coverage you’re entitled to. Many a time, you might find the need to extend your cover and better the protection. At any given time, if there are any changes or modifications made to the house, it’s important to revise the value of cover accordingly.
Most people tend to ignore this, but getting alternative accommodation or living cover is a must. This will ensure that you have enough funds to meet rent and other expenses in case of a total loss.
5. When Should I Re-evaluate It?
As a general rule of thumb, you should re-evaluate the cover needed every 5 years or so. Changes in the economic cycle and inflation will impact the cost of the building and its contents. As such, you need to ensure that your house isn’t under- or over-insured at the time of claim. Plus, by re-evaluating your policy, you ensure that you always pay the right premium amount every year.
So if you’ve made up your mind to invest in a house, it would be advisable to keep these tips in mind, purchase home insurance and raise a protective wall around it. As they say, peace of mind is priceless.