Factors Affecting Premium of Property Insurance

Posted on: Oct 6, 2023 | 3 mins | Written by: HDFC ERGO Team

Factors Affecting Premium of Property Insurance

Whether inherited or bought, owning property is a massive milestone for many in India. It's much more than just a house; it's regarded as a symbol of security. Whether it's a cosy apartment or a grand villa, our properties hold tremendous value, both sentimentally and financially. But let's face it: life can be highly unpredictable. Natural calamities, accidents, and unforeseen events can ruin everything in minutes, which may have taken us years to build. This is where property insurance becomes so crucial, as it offers a safety net when the unexpected comes knocking. However, a pivotal aspect requires our attention — the insurance premium. Let's understand the factors that influence property insurance premiums better.

Definition of Property Insurance

Property insurance is a type of policy that provides financial protection to property owners against any damage or loss to the insured property due to unfortunate events like natural calamities, riots, vandalism, fire, theft, accidental damage, etc. Whether it's a residential house or commercial premises, property insurance helps mitigate financial losses when the building gets damaged or destroyed in an unexpected event. We cannot predict the extent of damage a natural calamity or fire can cause to our dream property. So, to safeguard our finances from such unforeseen perils, it is important to protect our home or office space with property insurance.

Importance of Understanding Premium Factors

The cost of an insurance policy depends on premium factors such as type of plan, sum insured, deductibles, location, etc. It's important for a policyholder to understand the factors affecting property insurance premiums while purchasing insurance to make an informed decision. The policyholder will be able to assess if the property insurance premium charged is justified for the coverage offered; otherwise, the person may be overcharged for the coverage he/she doesn't need or may be charged unfairly. If policyholders have a good understanding of the factors affecting property insurance premiums, they can question any discrepancies and negotiate for better rates. They can also take measures to reduce the property insurance premium, such as installing anti-theft devices, etc.

Common Coverage Types / Types of Property Insurance

1. Homeowner's insurance:

This is the most common type of property insurance covering the structure and contents of the house against any damage or loss incurred due to natural or man-made calamities, fire, theft, etc. Meant for individuals who own homes, house insurance also provides liability coverage in case someone gets injured on your property. The home insurance premium will depend on several factors, which you can check with the insurance company.

2. Renter's insurance:

Renter's or tenant's insurance covers your personal belongings if damaged in a covered peril such as fire, theft, or natural or man-made disasters. The homeowner's insurance provides financial protection to the structure of the house but not the contents of the tenant.

3. Commercial property insurance:

This type of property insurance is meant for business owners to protect their commercial properties, such as shops, warehouses, offices, factories, hotels, etc., and assets like equipment, inventory, etc.

4. Fire insurance:

Accidental fires can cause significant damage to the property and its contents. Fire insurance provides financial protection against such mishaps, including explosions and lightning. Fire insurance policies can be bought for residential as well as commercial properties. However, if the fire is due to wilful negligence, insurance will not cover the losses incurred.

5. Public liability insurance:

This insurance is mandatory for business owners. It provides financial support to the insured in case of any damage a third party suffers on your property.

Factors Affecting Property Insurance Premiums

The factors affecting property insurance premiums are —

• Location of the property:

If the property is in a flood-prone area or a location with high crime rates, the property insurance premium will be slightly on the higher side.

• Age of the property:

If your property is old, the likelihood of filing claims is higher, and for this reason, insurance providers charge a high premium. New buildings have low premiums.

• Type of property:

If you are insuring a factory, the premium will be more as compared to a small store or house.

• Security measures:

If you install anti-theft devices at home or commercial property, the chances of theft could be low, so the property insurance premium will be lower.

• Value of the property:

If your property has a high market value, the sum insured by the policy will be high, which, in turn, will increase the property insurance premium.

• Add-on covers:

Many optional covers can be bought with additional premiums to enhance the coverage. Any optional covers you add to your property insurance will increase the premium.

Conclusion

Buying a property is a big investment. Any property, whether it's a house, shop, office, or restaurant, can get damaged or destroyed due to unforeseen events like a fire, theft, riot, vandalism, flood, earthquake, cyclone, etc., in spite of taking every precaution to protect the structure and its contents. Repair or rebuilding costs can cause financial hardship to the owner if the property is not covered with property insurance; your insurer will provide financial protection in case of such incidents and ensure peace of mind.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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