Home insurance is seen by many as a complex area and many householders play it save and stick with their existing provider even though a quick analysis of their policy would probably highlight inefficiencies. There are a number of traps that are easy to fall into when choosing the level of cover for the home and avoiding them can significant amounts of money.

What is home insurance?

Insurance is the protection or cover that individuals pay to have in place as a contingency should anything go wrong with their home. It can be split into two main strands, buildings cover, that protects a householder should anything relating to the actual property be affected adversely, and contents cover, that insures the householder against losses associated with the contents of their home. Premiums are paid either annually or on a monthly basis so that should any losses occur a claim can be made on the policy.

The most common mistake

A common problem for many householders is that of over insurance. For buildings cover it is important to insure only the rebuild cost of a property and not the market value. For households located in affluent areas this is an essential consideration because market value will contain a premium that is of no relevance for insurance purposes.

Other issues

Whilst it is an easy mistake to over insure on buildings cover it is also tempting to under insure on contents as collectively a house can be filled with a relatively high value of contents.  It is important not to under insure in this area because if an insurance assessor looks at a claim that is at the upper end of the insured limit yet is aware of assets that were not affected or claimed for then under insurance could lead to the insurance company limiting its payout or demanding significantly higher premiums to continue with the policy. Items such as cash are not typically covered by a home insurance policy in India.

Government Approved Valuers

When dealing with high value items most insurance policies active in India require valuations carried out by a valuer who is approved by one of the three levels of government in India. The use of a government approved valuer gives credibility to the financial processes involved in arranging insurance cover and assures the providers of insurance that assets have been assessed by an individual with certain skills and core competencies. It is very important when considering home protection that consistency between policies is clearly visible. One of the more common differentials is any excess, the first part of any claim that is payable by the householder. There is a reverse correlation between the excess that is required by a policy and the typical premium payable, the higher the excess the lower the premium will be. Another differential may be the impact of a no claims bonus, the discount offered by an insurer to its policyholders that do not make a claim over a specified time period. As with any insurance cover a lower the incidence of claims will result in lower premiums but in year one there may be a greater discount available in subsequent years in certain policies and this is a point worth investigating. A premium for one family seeking to insure their home may be market leading in the current year but that advantage may erode over time if there is a no claims discount that is capped at a specific percentage.

Interest rates

It is possible to pay for most insurance policies by monthly direct debit but in order to facilitate this it is highly likely that the insurance company will apply interest to the annual premium to reflect the fact that it is being paid in installments. The annual percentage rates (A.P.R.) can vary between providers and in many cases are as high as the rates applied to storecards or credit cards which are not very attractive when compared to other forms of borrowing. A read of the small print of an agreement will determine what the applicable A.P.R. is and the impact of this can be assessed.

And finally…

It may be worth considering other incentives when comparing insurance quotes. The Indian insurance market is rapidly expanding and the methods used by firms to compete are evolving. There are plenty of savings to be made if people are prepared to shop around and seek out the best deal. It may even be worth telephoning a provider to see if any further discounts can be applied, it is surprising what a little negotiation can do to the overall cost of insurance. Customer inertia will almost certainly lead to the payment of unnecessary premiums and regular reviews of home insurance cover are recommended to ensure that the best value cover is in place.

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