Personal Finance

FAQs: Property insurance

| Updated on December 30, 2018 Published on December 30, 2018

The following are the frequently asked questions on property insurance:

What are the requirements to purchase a property insurance policy?

The proposer of the policy should first and foremost have interest in the assets being proposed for insurance, that is, he/she should stand to lose financially in the event of loss or damage to such assets. Secondly, the proposer should submit a proposal form (which can be obtained at any insurer’s website or office).

What are the different types of property insurance policies?

The most popular is the standard fire & allied perils policies, which covers most of the perils the property is exposed to like fire, riots, flood, and storm. Loss of current assets due to burglary and theft can be covered under burglary & house breaking insurance policy. Valuables can be covered under all risks policies and there are package policies for house owners and shopkeepers.

How does one fix the sum insured?

Generally, there are two methods. One is market value (MV) and the other is reinstatement value (RIV). In the case of the former, in the event of a loss, depreciation is levied on the asset, depending on its age. Under this method, the insured is not paid amount sufficient to buy the replacement. In the RIV method, the insurance company will pay the replacement cost, subject to SI ceiling. Under this method, no depreciation is levied. One condition is that the damaged asset should be repaired/replaced to get the claim. It may be noted that RIV method is allowed only for fixed assets and not for such assets as stocks and stocks in process.

What will be the cost of a fire insurance policy?

The cost of a fire insurance policy or the premium will depend on perils to be covered; the value of the items covered; the usage of the premises proposed for insurance; the location details of the premises proposed for insurance etc; the construction of building and occupancy.

Why should I insure my building?

Fire and other perils (normally covered under a fire insurance policy) can cause loss/damage to buildings. There have been fire accidents that have completely destroyed multi-storeyed buildings. Floods can also bring about devastating losses. Similarly, riots, acts of terrorism can also cause losses to human lives as well as property.

In case of loss, what are the obligations of the insured?

Every insured is expected to behave as though he is uninsured. He must take all precautions to prevent/aggravate the loss; inform the insurance company which has to be given an opportunity to inspect the damages; inform fire brigade that will assist in putting out the fire. During fire fighting, any damage to other insured property caused by water, will be paid by the insurance company. The insured must extend cooperation to the surveyor while inspecting and assessing the loss. If arrival of the surveyor is likely to be delayed, photos should be taken and the unaffected assets shifted to a safe place. Completed claim form and documents as required by insurer must be given, in support of the claim. After repairs/replacement, all bills must be submitted to the insurer.

If I insure for a higher value, will I get a higher claim amount?

No. When you apply for a fire insurance policy, the current market value of the property or the reinstatement value of the property, depending upon the basis of the sum insured, should be accurately calculated for arriving at the correct amount to be insured. The compensation payable when a covered loss or damage occurs shall be based on whether or not the property has been insured adequately. If the amount insured is excessive, it will mean overpayment of unnecessary premium; if the amount insured is inadequate, the insured will receive amounts in proportion to the market value only.

Source: IRDAI

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