Every home owner knows the importance of house insurance, but some of them underinsure their homes which is a very bad idea and here is why.
An insurance policy is a contract between the insurer and the insured. This means that both parties have to reveal everything of importance that is relevant to the contract to help both parties to decide whether it is a viable partnership. The following things govern house insurance and other contracts:
The Duty of Disclosure
The insured has to disclose anything that they are aware of that may influence the insurer’s decision to accept the risk of insuring them or not.
Clause of Utmost Good Faith
Each party involved in the contract has a duty of some kind to the other. The insurer will pay out an agreed upon amount under certain conditions, the insured will pay a monthly premium. This clause is the clause by which all other disputes are settled and all parties are obliged to act honestly in all dealings.
Another important consideration is the amount to take out house insurance for. This affects the value of the premium and also the amount the insurer is liable for should a claim be made. This is how you can determine how much to insure your house for: find out what the total cost of rebuilding the house in its original state with all its outbuildings would be. Also include the cost of demolition and debris removal and the engineering and architectural costs involved in rebuilding a house. In order to get this right, it might be a good idea to talk to a person who has experience in this kind of thing, i.e. a property evaluator.
It is very important to get this figure as accurate as possible since if you underinsure the property, you will not get the full value of the house form the insurance company. They will only pay out what the house insurance policy says they need to pay. The rest will be for your pocket.
Underinsuring will also affect your claims. If you underinsure by half, then the insurer is only obliged to pay half of what the actual damage is. This is because the damages are assessed as a percentage of the total value of the property. Os if twenty percent of your property is damaged then the insurance company only needs to pay out twenty percent of the insured value of the property, again, the rest is your problem.
This means that if you underestimate your house insurance values, you could be in for a nasty surprise. In order to avoid this kind of thing, it is a good idea to re-evaluate your home each year and update your house insurance policy accordingly to be sure that you are insured for the correct amount and will not find yourself sitting with no house and not enough money paid out to rebuild it or get a new home. Do not be afraid to ask the assistance of an experienced property evaluator to get an estimate of the value of your property.
For information on Insurance Master click here.