How is the home insurance premium calculated?

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

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 a home insurance policy. If you are curious about the calculations of the home insurance premium, you can take the help of online calculators. Here are a few things about home insurance calculators that will help you in choosing the right policy.

Calculation of sum insured and premium amount for a policy?

If the question of how to calculate home insurance premiums is bothering you, here is a simple way to calculate the premiums. You can take the help of an online premium calculator for your home insurance plan. The online calculator requires a few inputs from your end to calculate the premium as accurately as possible. The following are some of them.

1. For properties that you own:

• The cost of construction,

• The age of the house or building,

• The current value of the contents of the house,

• Total built-up area of the house, and

• Personal details of the owner of the house.

2. For rental properties

• The current value of the contents of the house, such as appliances, electronics, jewellery, etc.

• Personal details of the tenant of the house.

Once you provide these details, the online calculator will quickly calculate the premium of the policy. Depending on the estimated policy premium, you can tweak some of the parameters and visualise how the factor impacts the premium. Thus, helping you to determine the premiums of a property insurance policy.

Which factors impact the premium of home insurance policies?

If you are wondering how are home insurance rates calculated, insurance providers consider quite a few factors to determine the policy premium. The following are some of the major factors that aid in the process.

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.

Why using a home insurance calculator is beneficial?

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.

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.

Conclusion

You can take the help of online calculators to deduce the policy premiums for property insurance policies as well as home insurance policies. And 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.

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

Your Family and Home Insurance: How People can Affect Your Premium

Why your home insurance rates or the premium may increase?

How to save money on your home insurance premium?

How Credit Score Affects Home Insurance Premium?

Want to Check Property Insurance Premium? Here’s Everything You Should Know