HOMEOWNERS POLICY
Homeowner’s insurance (also known as home insurance) isn’t a luxury, it’s a necessity. And not just because it protects your home and
possessions against damage or theft. Virtually all mortgage companies require borrowers to have insurance coverage for the full or fair value of
a property (usually the purchase price) and won’t make a loan or finance a residential real estate transaction without proof of it.
You don’t even have to own your home to need insurance; many landlords require their tenants to have renter’s insurance coverage. But
whether it’s required or not, it’s smart to have this kind of protection anyway. We’ll walk you through the basics of this type of policy.
What a Homeowner’s Policy Provide?
The elements of a standard homeowner’s insurance policy provide that the insurer will cover costs related to:
Damage to the interior or exterior of your house – In the event of damage due to fire, hurricanes, lightning, vandalism or other covered
disasters, your insurer will compensate you so your house can be renovated or restored or even completely rebuilt. Damage from floods, earthquakes and poor home maintenance is generally not covered and you may require separate riders if want that type of protection. Standing garages,
sheds or other structures on the property may also need to be covered separately using the same guidelines as for the main house.
Loss or damage to your personal belongings
– Clothing, furniture, appliances and most of the other contents of your home are covered if they’re destroyed in an insured disaster. You can
even get “off-premises” coverage, so you could file a claim for lost jewelry, for example, no matter where in the world you lost it. There may
be a limit on the amount your insurer will reimburse you, however. According to the Insurance Information Institute, most insurance companies
will provide coverage for 50–70% of the amount of insurance you have on the structure of your home. If your house is insured for $200,000,
there would be up to about $140,000 worth of coverage for your possessions. If you own a lot of high-priced possessions, you might want
purchase a separate
How is the insured amount and premium calculated?
In case of property insurance, the sum insured and the premium are calculated on basis of the property area, rate of construction (per square
feet) and the location of the property. The insured sum of two houses of same size can be different. The logic is similar to what goes in buying a
house. For instance, House A is 500 sq ft and constructed in a prime location in the heart of Mumbai will easily cost you around Rs 5-10
crore, while House B also 500 sq ft built in the outskirts of the Metro shall be rated around Rs 30-60 lakh. Similarly, factors like location and
construction cost play equally important role in deciding your house’s insurance amount.
Also, it is important to note that the property is insured for the value that it would require to rebuilt the it and not for the its market value.
Whereas, the contents in the house are insured for ‘market value minus the deprecation’.
Therefore, while buying a house insurance, keep a check of the following factors:
a) Coverage: While buying a property insurance, you will come across options of insuring contents in the house, structure of the house or
both. Depending on which plan you take, your premium and security of your property will differ.
If the house you are staying in is on rent, then it would be more sensible to insure just the contents of the house.
b) Rate of construction: Insurance companies generally have fixed rate of construction for different localities. Nevertheless, if your property
was built using a higher or lower standard material then your policy’s rate of construction may vary accordingly.
c) What is covered and what is not: Most of the insurance companies offer coverage against similar factors. However, what they do not cover
may differ in each case. Do not forget to read policy wording about things included and excluded.
d) Clarity on claim process a must: As a thumb rule, get a clear understanding of the clauses included in the claim process. Make a note of all
required documents, proofs to get your claim.
These are just few basic factors that can make the process of buying a house insurance policy easy for you. However, depending on each
individual’s needs and preferences, every insurance policy is different in its own way. Therefore, it becomes even more necessary to do your
personal research before buying the right policy to meet your needs.
Basic Homeowners Insurance Terms
Insurance can sometimes seem like a foreign language unto itself. Here is a glossary of definitions for some common terms used in this guide to
make sure you know what your agents and adjusters are talking about.
Adjuster – A person who is trained to investigate losses and seeks to determine the extent of an insurer’s liability for that loss when a claim is
submitted. Adjusters can represent specific insurance companies or can be a “public adjuster” hired by the claimant to work independently.
Appraisal – An evaluation of a home insurance property claim by an authorized person, usually an adjuster, to determine property value or
damaged property value. Many policies require this appraisal process to resolve claim disputes.
Cancellation – The termination of a homeowners policy before its agreed-upon expiration date, most often for nonpayment of the premium.
Claim – A homeowner’s request for reimbursement under the terms of the policy.
Deductible – The amount that a policyholder must pay out of their own pocket before coverage kicks in – even when a claim is accepted.
Depreciation – The estimated decrease in value of property over time due to wear, tear, aging, and other factors.
Endorsement – A provision, document, or clause added to a homeowners policy that modifies the original coverage offered by the policy.
Exclusion – Items, conditions or circumstances that are specifically noted in a homeowners policy as not being covered.
Exclusive agent – An insurance agent who only sell the products of one insurance company.
Group policy – A policy sold through an employment-based group, an association or a special group insurance trust in which all participating
members are included under one master policy. Each receives an individual certificate of coverage from the group policy.
Independent agent – An insurance agent who represents more than one company.
Individual policy – A policy sold directly to an individual.
Lapse – An interruption in coverage caused by non-payment of the premium.
Liability coverage – Covers losses for bodily injury or property damage to others that occur on the homeowner’s property, as well as health
and legal expenses that may arise from lawsuits. Both losses are covered up to a specific dollar limit.
Market value – The current worth of your home, including the land on which it is built.
Nonrenewal – When an insurance company declines to renew a policy at the end of its current term.
Peril – A specific risk or reason for a loss.
Personal property – Portable items, such as furniture, electronics and clothing, that are not permanently attached to the home.
Policy – A written contract between an insurer and customer specifying coverage for loss or damage to property.
Premium – The price charged by an insurance company the varies depending on the level of coverage purchased.
Property coverage – Protection for land or personal property against loss or damage.
Underwriting – The process that insurance companies use to determine eligibility and premiums for coverage.
