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Demystify the myths of the jargons used in the home / house insurance
Many of the home owners may wonder what is the right amount for which a house has to be insured to mitigate the sufferings caused by accidents involving fire or any other natural disaster. They will be thinking that they can always rebuild the house with the money they would be getting as claim. The problem arises when the worth of the home is undervalued or underestimated during the initial processing stage itself. But when disaster strikes, the money they would be getting as claim won't be sufficient to rebuild the house totally.
Some of the common terms you are supposed to be comfortable while dealing with house insurance are
It is nothing but the value at which a property of similar age and condition can be bought or sold in the market. Hence it is called as market value. The market value of a property varies continuously depending on the prevailing inflation scenario, cost of raw materials that go in to the construction of the house coupled with depreciation due to ageing.
Reconstruction / Reinstatement value
It is the cost involved to rebuild the house or any building (office etc.) including the incidental charges levied by the professionals like architects, surveyors, approval charges etc. and removal of debris or wreckages (of the demolished old building). Hence, it is always advantageous to insure the house on reinstatement / reconstruction value so that the claim would be settled for the value of new property without taking into account the hazard of depreciation.
However, caution is the watchword while insuring the house on reinstatement value as full benefits will still elude the insured because the policy value has to keep pace every year with the shooting up market value.
If the insurer does not insure his house to the original market value, the claim he will be getting incase of loss of property will be limited. This may put the policy holder at a disadvantageous position but the spirit of underinsurance is to keep things fair for all as claims can only be paid out of premium paid on full values. The chances of the entire property being destroyed are extremely low and hence underinsuring a house or office is considered as a good option. In other words, underinsurance is an elegant way of forcing policy holders to insure their home for its full value.
The golden word in home or house insurance is reading the guidelines twice before entering into agreement with the insurance company and understanding the fine prints before signing the document which can help avoid heartburns with your insurance company in the event of a disaster.
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