How is Home Insurance Premium Calculated?

Posted on: Feb 18, 2019 | 3 mins | Written by: HDFC ERGO Team

How is Home Insurance Premium Calculated?

How is the home insurance premium calculated?

Buying a house will most likely be one of the largest investments that you will undertake. Given the large investment amount and the expensive contents that you will fill the house with, it is sensible to opt for property insurance. If you are curious to know how is home insurance premium calculated, you can take the help of a home insurance premium calculator available online. Let us understand some basic things about home insurance calculators that will help you in using them accurately and thus, assist in choosing the right policy.

Factors Affecting Home Insurance Premiums

If you are wondering how is home insurance premiums calculated, insurance providers consider quite a few factors to determine the policy premium. The following are some of the major factors that are considered by insurers to calculate home insurance premium.

1. POLICY COVERAGE

The premium of the policy heavily depends on the type of policy you have opted for and the coverage as well. For example, if you choose a risk insurance policy, it will provide you with a wider range of coverage and a higher premium as well. On the other hand, a policy that covers only fire or earthquake might be lighter on your pockets.

2. NEIGHBOURHOOD

The quest for finding out the calculations of the home insurance rates leads us to the neighbourhood or location of your house. If your house is present in a locality, which is more prone to crimes, it is likely that you will end up paying a higher premium. Conversely, if your house is located in a gated community or has 24 hours of security, it will reduce your policy premiums.

3. CONSTRUCTION COST

The amount of money that you have spent on constructing your house also plays a role in deciding the policy premiums. The type and quality of materials that you have used for the construction of the house have a direct impact on the policy premiums. A house that uses low-quality materials, will fetch a lower policy premium, however, it will also impact the longevity of the house.

4. ADD-ONS

The premium of your policy would also change if you decide to pick some add-ons for the policy. Add-ons are additional features that you can plug into the policy if you want better coverage or protection. However, they do come at a small premium.

5. USAGE OF PROPERTY

Another factor that can impact the policy premium is the usage of the property in question. Residential properties are more likely to attract a lower premium due to their lower exposure to risks. On the other hand, commercial properties will fetch a higher premium due to their usage and the higher risks involved.

What is a Home Insurance Premium Calculator?

A home insurance premium calculator is an online tool available for the convenience of the insured. The homeowners can use this tool to check the premium of the home insurance plan they intend to take and by giving in the required details they can get an estimate of the property insurance they intend to take. Also, this tool helps them in comparing the premiums of different plans offered by an insurance company or by different insurers. With the help of this tool, homeowners can know the premium and plan the expense accordingly.

How to Use a Home Insurance Premium Calculator?

Contrary to the belief, the home insurance premium calculator is very simple to use and can be used by anyone. Following are some of the basic steps that one needs to follow:

• Enter the estimated market value of the property and the contents you need to insure

• Enter the location

• Choose the tenure of the policy

• Click on the button to calculate the premium

• The tool will display the premium on the screen

Benefits of Using a Home Insurance Premium Calculator

Home insurance calculator has more than a few uses. The following are some of its major benefits.

1. DIFFERENT POLICY COVERAGE

You might want different policy coverage for your home. Irrespective of which type of coverage you seek, the calculator will help you get an estimate of premiums. You might want a comprehensive cover or coverage for the contents of the house. The calculator will allow you to select that and view the estimated premiums.

2. GET A HASSLE-FREE ESTIMATE

One of the major benefits of using a calculator is that you can receive instant estimates of home insurance plans. This allows potential buyers to choose a policy that not only offers the coverage that they are looking for but fits their budget as well.

3. BYPASS ANY REPRESENTATIVES

A big perk of using an online calculator is that it eliminates the need to interact with an insurance advisor or representative of the insurance provider. You can look at the different aspects of buying home insurance and decide which policy meets your requirements, with an unbiased view.

Tips for Lowering Home Insurance Premiums

Everyone wants to get a home insurance policy with the best coverage without paying exorbitant premiums. Now that we have understood how is home insurance premium calculated and how to use a home insurance premium calculator, let us also learn some tips for lowering home insurance premiums.

1. Combine policies

Taking a few insurance policies from the same insurance company will always help in getting a good rate and thus, reducing the home insurance premium.

2. Review policy periodically

At the time of renewal, always ensure that you review and update the policy. Contents etc can change during the policy year and also the required coverage. By avoiding unnecessary articles and the right value, one can easily ensure they do not pay extra premiums to the insurance company.

3. Increase your deductible

The deductible is the amount the insured will pay from his pocket in case of a claim. If this amount is increased, the premium will be reduced. However, this must not be done to decrease the premium and one must be careful the deductible is affordable and will not cause a financial strain in case of a claim.

FAQs

1. CAN TENANTS BUY COMPREHENSIVE COVER?

No. Tenants can opt for coverage for the contents of the house only.

2. HOW CAN I REDUCE MY POLICY PREMIUMS?

By opting for adequate coverage, choosing a higher voluntary deductible, and installing anti-theft devices.

3. How is the insurance value of a property calculated?

The insurance value of a house is calculated on the basis of the value of the building which is calculated on the basis of the built-up area of the house and also the per square foot rate of the construction cost.

Conclusion

You can take the help of home insurance premium calculator to deduce the policy premiums for property insurance policies as well as home insurance policies. One of the major benefits of using an online calculator is that you can play around with the different parameters and visualise how they impact the policy premium and then choose the ones that suit you the best and are the most affordable.

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

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