Understanding Sum Insured in Home Insurance

What is the Sum Insured in Home Insurance?

The sum insured in home insurance refers to the maximum amount an insurance company will pay out in the event of damage or loss caused to your home due to insured perils. It is based on indemnity. Hence, you must understand how this value is calculated and how it changes over time.

Features of Sum Insured in Home Insurance

Home insurance policy is a type of property insurance, which can purchased by homeowners and tenants as well. Here are some of the critical features of the sum insured in home insurance:

1. Initial Assessment

   At the commencement of your policy, you must declare the cost of constructing your home building. This declared amount becomes your sum insured, representing the maximum payout during the total loss of your home.

2. 10% Automatic Increment

   Many home insurance policies, such as the Bharat Griha Raksha (BGR) Policy, offer automatic increases in the sum insured to account for inflation and rising construction costs.

   Usually, the SI increases annually at 10% per annum without paying additional home insurance premiums. It raises up to a maximum of 100% of the initial sum insured chosen during the policy's commencement.

3. Damage Restoration

   Home insurance policies, especially the Bharat Griha Raksha Policy, allow you to restore the full original sum insured amount after a loss or damage caused by insured perils. This guarantees continuous coverage.

   However, in this case, you have to pay a proportionate premium for the unexpired policy period from the date of loss or damage caused to your insured property.

How Do You Select the Right Sum Insured in Home Insurance?

Is it essential to select the right sum for your property insurance as it decides the compensation amount when you raise a claim? Here are some crucial factors that you must consider to help in determining the correct sum insured:

1. Know Your Property's Value

   Firstly, you should know the exact value of your property to be insured. For this, you have to conduct a thorough evaluation, which includes the construction cost, fixtures & fittings, and the content of the house. If you cannot assess the valuation, hire a professional; it is the foundational step in determining the sum insured.

2. Consider Inflation

   When deciding the sum insured, consider inflationary pressures, as construction and replacement costs rise over time due to this. Hence, you should consider this when selecting the SI.

3. Replacement Cost Consideration

   Selecting a sum insured should consider the estimated replacement cost of damaged items or rebuilding the structure. In a mishap or damage, a home insurance policy typically covers the cost of replacing damaged items or rebuilding the structure to its original state.

4. Geographical Risk Assessment

   If the geographical location of your house is in high-risk areas prone to natural disasters or high crime rates, it might require higher coverage levels to mitigate potential risk. Therefore, a lower or insufficient sum insured might hamper your pocket.

5. Periodic Review and Adjustment

   The sum insured must be reviewed and reassessed regularly to ensure that it is sufficient to do potential changes in property due to renovations, modifications, additions, or alterations. Hence, you must reassess the sum insured to ensure that the coverage remains commensurate with the current worth of the property.

   By incorporating these tips and considering factors such as property evaluation, inflation, replacement cost coverage, geographical risks, and periodic reviews, you can select the right sum insured for your home insurance policy, providing you with comprehensive coverage at the time of need.

Summing It Up!

The sum insured in home insurance refers to the maximum payout amount a home insurance company will pay out in the event of a covered loss or damage to your home or its contents. It is typically determined based on the value of your property, the cost of rebuilding or repairing your home, and the value of your personal belongings. Therefore, choosing the correct sum insured is helpful in avoiding situations like underinsurance or facing financial strain during the home insurance claim process.