Insurance is often regarded as a perplexing decision. While it is not entirely true, most individuals believe it to be true. The terms and conditions of an insurance policy make it tricky for a lay-man to understand without knowing what the terminologies mean. So it is always a wise decision to be aware of the various jargons used in your policy documents.
While it is not limited to health or motor policies, demystifying home insurance terms is made easy in this article. Read further to know more.
#1 Sum insured
Sum insured is the maximum liability that the insurer will assume in case of a loss. To put merely, the sum insured is the amount that your insurance company will pay if your home suffers any damages due to the events specified in your policy document.
Premiums are the amount which you, the applicant pay to avail coverage for your homes, i.e. the structure or its contents. Premium is required to be paid periodically as per your policy terms and is based on the following factors –
- Amount of sum insured
- Age of the structure
- Type of coverage selected
- Amount of risk involved
- Type of your home
- Location of your house
#3 Policy Period
The policy period is the duration during which your home insurance policy is in force and covers you against unexpected contingencies. This period commences on the policy start date and terminates at midnight on the policy end date as specified in your policy document.
A deductible is an amount which you need to bear from your own pocket for any cost of repairs or reconstruction. At the time of making a claim, the deductible portion of your policy is required to be paid by you, the policyholder, before the policy coverage kicks in.
Coverage means the various cases under which you shall be reimbursed for the damages or repairs. Make sure you make a thorough evaluation of the coverage at each insurance renewal date. Thoroughly reading the policy document will help you stay aware of the coverage offered in your home insurance policy.
#6 Standard and Fire Perils
Your home insurance policy covers different events. One such type is a standard fire and perils policy. It offers protection to your home against the loss caused due to both natural as well as man-made perils like fire, floods, storms, earthquakes, strikes, riots, explosions and landslides. You can find more details about them in your policy document.
#7 Indemnity basis
It is a method of settlement to the policyholder in case of loss or damage. Under this method, the reimbursement amount of the property and furnishings (if insured) is calculated after deducting depreciation. Thus, the policyholder is not reimbursed the full amount of the asset.
#8 Reinstatement Value
It represents the cost of replacing the damaged property at its current market valuation. Here, depreciation is ignored. A reinstatement value provides reimbursement to the policyholder in case of damage to restore at its original state. If reconstruction of property is required, the property should be constructed in the same place or any other location with an equivalent value of the property damaged. The reimbursement value is subject to the ceiling amount of sum insured.
#9 New for old basis
This method of loss settlement is where the insurance company pays the entire amount for the replacement of your asset when it is damaged beyond repair.
#10 Agreed Value settlement
Your insurance company settles the claim on the agreed value at the time of purchase of the policy. It would be best if you kept in mind that agreed value settlement does not consider the current valuation of your house or its contents at the time of settlement.
While you look for various plans to suit you the best, a home insurance premium calculator is a nifty tool that will aid the comparison process. Take advantage of this calculator and select the right policy to insure your home!