Understanding home insurance policy including what is covered and what is not is crucial before shopping one such policy. Both public and private sector companies offer home insurance policies. Basic home insurance policies, irrespective of the companies, have two subsections that are –
• The buildings
• The contents of the building
Home insurance policies cover against risks from fire, allied perils, riots, explosion of appliances, gas, natural calamities like earthquakes, floods, theft of valuables including jewellery, electronics etc.
The structure of your building is insured in three ways –
1. Replacement cost involves the cost of replacing damaged property without deducting depreciation.
2. Extended replacement cost covers certain percentage of the costs extending the limit to offer protection against sudden increased costs of construction.
3. Actual cash value involves the cost of replacing building after deducting the depreciation costs for use and age of the building.
Home insurance policies cover belongings of buildings in two ways –
1. Replacement cost coverage involves replacing damaged property and items of property without deducting the depreciation.
2. Actual cash value involves paying an amount for replacement value of damaged properties after deducting depreciations.
Checklist of things for selecting an appropriate home insurance policy –
• Limit of policy on personal belongings including silverware, jewellery, furs and computer etc.
• Make a list of major items and data on those such as serial numbers, make and model numbers, prices and date of purchase, current value etc.
• Create a documentary of inventory by either taking pictures or video pictures. Keep these records/visual records in a safe deposit box, away from home (for example, in a locker).
• Upgrade this documentary with purchase or removal of some belongings of your building.
The best way to buy a home insurance contract is by shopping around the insurance policies, collecting quotes and discussing with insurance representatives to clarify your doubts. Make sure you renew your policy every year.