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Home Insurance: Are You Over or Under-Insured?

Posted by Royal Sundaram on 02 May 2018


home insurance  is an essential element of any robust financial plan. It protects the most important possessions you own: your house and everything in it. When disaster strikes, it’s your home insurance company you run first to. However, for such an important policy it is often not treated with the kind of prudence it deserves. Most people believe that if they pay more in premiums, the more insured they will be. That is not the case. While over-paying is hurtful to your pockets, being under-insured will hurt you more. So how does one analyse if they over, under or rightly insured?

Cover the house, not the land

The key to having adequate insurance is to purchase a policy that covers the structure of the building and not the land. In case of any natural or man-made disasters, it’s the structure of the house that you will be rebuilding/renovating. The land, however, will remain the same. So, a comprehensive coverage will include only the rebuilding costs of the house (including the same materials), not the expected/projected value of the land.

To get the right value, calculate the costs of rebuilding your property. You could either ask a local contractor, real-estate agent or a builder to give you an average estimate rebuilding cost per square foot in your area. Once you know the amount, check if your coverage is up to the figure. If it isn’t, it’s time to increase your protection as you are under-insured.

Secure your contents

Another thing that affects the degree of your protection is coverage for your belongings inside the house. Make sure your possessions, furniture, valuable jewellery, art and other items are adequately protected. A comprehensive policy will include home contents insurance. But if your policy doesn’t cover this, you can always add this additional protection as add-on rider. However, this may up your premium, though. To have an estimate of how much you’ll be expected to pay, you can use online tools like home insurance premium calculators. Easy and accurate, this will help you a lot with your financial planning.

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