Insuring your property is one very smart way to avoid financial pitfalls in the future—this, of course, is a widely known fact by now.
You surely never want to wake up one day with a realization that you’ve lost your valuable property forever. This could be due to, for instance—a fire outbreak that’s engulfed the whole of your asset. An asset that, you worked so hard for and spent a lot to acquire.
This is why in the following post, we shall show you how to prevent this from happening by taking you through all that property insurance is about. Plus, why it is essential that you get this policy immediately.
What is Property Insurance?
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Property Insurance is a policy that provides you coverage against almost all kinds of future loss or damage, to your property. The properties covered here range from your tangible assets such as personal homes/buildings, land, or any expensive equipment you own, etc., to even your business assets.
Property Insurance also offers protection against liability for a loss due to your property.
Some policies under this insurance cover against additional risks such as certain equipment breakdowns and wreckage removal after serious damage to property.
The policy works with the common process whereby your insurer pays you for a loss of the property you insure, in return for a small amount of premium you pay every month towards the event of such damage/loss occurring.
Major Ways of Insuring Properties
There are 2 major ways or approaches to consider in insuring your property. They include named-peril insurance and open-peril insurance.
- The named-peril insurance covers only named risks to your property such as fire, theft, lightning or in the case of an explosion. Other named risks include damage or loss due to;
- Vandalism
- Windstorms
- Volcano accidents
- Civil riots.
- Open-Peril insurance offers coverage to all risks except those that are specifically excluded in the policy. The exclusions mentioned in such a policy include damages resulting from earthquakes and other specified natural disasters, floods, wars and nuclear attacks.
Note that this policy does not include coverage for normal wear and tear to any possession you have as that is not regarded as an accidental risk.
Common Examples of Property Insurance.
- Homeowners Insurance
This type of policy protects your house and other properties inside against any covered damage/loss.
Other forms or types of a homeowner insurance policy include condo and mobile-home Insurance policies.
It also protects against cases of third-party damage or losses due to your property for which you’d normally be required to hold responsibility.
It is important that you get this policy as a homeowner to protect against future risks.
- Renters Insurance
Renters Insurance offers coverage against any damage or loss to your personal belongings in a rented house. It also covers liability and ALE(additional living expenses)—that is, the insurer provides payment for your temporary living, in the case where you are displaced from your rented apartment due to damage.
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- Landlord Insurance
A Landlord Insurance policy covers for;
- Your rented building even if you do not live in there,
- Liability costs majorly due to a tenant suffering injury from a poor maintenance issue in your building such as a roof collapse,
- It also provides for your lost rental income in a case where a tenant misses a rent or damage occurs to your property forcing it to become inhabitable with no tenants for a while.
A landlord insurance policy is different from a homeowner insurance plan in the sense that the latter does not cover some risks involved with renting your home out.
- Personal Possession/Home Content Insurance
This insurance covers generally against damage or theft of your expensive household contents or tools you’ll otherwise not find easy to replace if you don’t insure them. These include costly home appliances such as a boiler or expensive jewellery like wedding/diamond rings.
- Commercial Property/Business Insurance –
This coverage offers businesses protection against damage or loss of commercial property due to fire, theft or natural disasters. This insurance often prevents a business from going into any serious financial crises from the loss of important commercial equipment.
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- Flood Insurance
This is a special policy that provides you coverage for the loss of your home or belongings due to a flood.
- Earthquake Insurance
This pays for any damage or loss to your personal home and property caused by an earthquake. This is often a standalone policy that requires you to pay separately or choose the option to make it an additional policy to your current existing insurance.
It is important that you research the extent of coverage of each property insurance that specifically applies to what you want. This is to allow you to make informed decisions on choosing adequate policy coverage for your needs.
Types of Property Insurance Coverage.
There are 3 types of property insurance coverage that exist universally. They are;
- Replacement cost coverage
- Actual cash value
- Extended replacement costs
Replacement Cost Coverage pays for the cost of repairing/replacing your property at the same cost/value of the property at the time of replacement. That is, the insurance company gets your property back at the same quality in which you got it, even if the price appreciates.
Meanwhile, in Actual Cash Value, the insurance company pays you the actual amount your property is worth. This is related directly to the depreciation your property has undergone. As such, calculations are done here to see what your property is actually worth with age and you’ll be paid accordingly.
Extended Replacement Cost, however, offers you a policy coverage of 25% more than your agreed coverage limit with the insurance company—only in the instance where costs of purchasing back that property have gone up.
Factors that Contribute to Insurance Premium Rate.
There are some key factors that will affect the premium rate at which your insurance company will charge you.
The insurer determines if your property is highly prone to risks covered depending on the presence or absence of these factors. These major factors often include:
- Condition and Age of your property: An older building or one that is slowly deteriorating attracts a higher premium from insurance companies.
- Geographical Location/Condition of Area: Insurers consider places in which there are occasional incidences of floods and disasters such as earthquakes, as high-risk areas. As such, the price rate of your insurance will increase based on this factor.
- Home Construction Material: A wood house is most likely to get into fire accidents and as such people see it as a high-risk property.
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- Replacement Cost of Property: You will have to pay comparably higher premiums if you prefer the insurance company to replace your home or belongings at the same quality which you got it. This is because the price of acquiring those at a further time would increase.
- Claim-History: Insurance Companies often go through past records of any claim made by a person. So if you are found to have made some claims before, your insurer will regard you more as a higher-risk customer. As such, your premium rate will increase.
- Excess/Deductible you are agreeing to: If you choose to pay a higher amount from your end to cover whenever any damage/loss to your property covered takes place, the burden on your insurer reduces and as such your premium rate will decrease accordingly.
To get maximum value for your premium, you should not forget to compare the rates and policy details of different insurance companies before settling with one.
Importance of Property Insurance.
We cannot overemphasize the importance of insuring your property.
Property insurance is needed by all who own valuable properties and belonging because you can never tell what might happen to your property in future.
One of the major benefits you get from taking this decision is that you will benefit from security against falling into heavy financial problems or even bankruptcy (in the case of a property mortgage).
It is, therefore, necessary that you consider buying insurance along with acquiring your property as the two go hand-in-hand to offer you a more stable future with adequate peace of mind.
Conclusion.
Now that you know all that property insurance entails, you can now go further in securing your future by purchasing the plan that best covers your possessions.
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