Top Factors That Decide the Premium of Property Insurance

Property insurance is a big fall-back option because such insurance policies cover the property from natural and manmade disasters. It is a source of peace of mind for the property owner because disasters and calamities can visit anytime and besides causing risks to life, properties are impacted by such events too.

Natural calamities like floods, earthquakes, tsunamis, storms, and infestation are covered; while for man-made events, factors like terrorism; theft and burglary, fire, and accidents are covered.

Choosing the right insurance policy is critical to deriving full benefits during unforeseen calamities. The insurance premium becomes a bone of contention for most property owners. This is why it is important to understand the factors that influence the estimation of the property premium.

Factors that affect the property premium are:

1. Location of the property

The place where the property is located impacts the premium calculation. When the property is located in a place that is prone to natural risks like earthquakes or tsunami or places where manmade factors play havoc like terrorism or fire incidents, the premium of the insurance policy is going to be higher than other places.

 

2. Property asset valuation

There are two broad sections under the property asset valuation. One is the structural feature of the property and the second is about the content within the property.

1. Structure of the house

This covers the structural features of the house. To determine the premium, two types of basic information are required:

• The total square feet area of the place
• The per sq. ft construction cost in unit currency.

 

1. Content of the house

This is concerned with the possessions inside the house and typically includes valuable things like jewelry, appliances, clothing, and such items. To calculate the premium, the estimated value of the jewelry is required.

 

3. Types of insurance coverage that property owners in India can apply for

Homeowners and property owners in India have three types of property insurance to choose from. The premium of the insurance accordingly depends on the type that they select.

Types:

1. All-risk Property Insurance scheme – as the name indicates, this insurance policy covers all types of risks that a property can face in its lifetime – natural, as well as artificial. Since the coverage is wide in this insurance cover, the premium accordingly is going to be the highest for this insurance type.

1. Earthquake insurance – the name says it all about the type of coverage this insurance scheme provides. This type of insurance is good for places in India that are prone to regular earthquakes, tsunamis, or volcanic eruptions.
2. Fire insurance – many property owners safeguard their property from fire-related incidents and accidents. The fire can result from manmade reasons like short-circuit or aircraft impact; and/or also result from natural reasons like lightning, storm, thunder, etc. The insurance policy, also known as FLEXAS stands for Fire, Lightning, Explosion, Aircraft Impact, and Smoke.

 

4. Types of buildings

There are two types of buildings: residential and commercial properties. The premium of insurance for residential properties is low compared to the premium of commercial properties because the usage or the footfall at the former is less compared to the latter because of which the risks are lesser comparatively. Commercial places like factories and warehouses have the highest premium because of the usage and content at the place.

 

5. How old the property is?

This is also a key factor that determines the premium amount of insurance policies. The properties that have aged and are old or worn-out are vulnerable to damages. Therefore, the insurance premium for such properties is higher than in newly constructed buildings.

 

6. Construction type – the type of construction influences the premium amount too. There are three types of building constructions –

• Class I Buildings – these are structures that are made using incombustible materials. The premium for this type of building is the lowest.
• Class II Buildings – these are structures that are made using wood. The premium amount is average.
• Class III Buildings – buildings made from any other kind of material other than wood or inflammable materials. The premium value of the property insurance scheme is the highest

 

Other than these factors, there are other parameters like previous insurance claims, presence of smoke detectors and fire extinguishers; latest surveillance systems, sprinkles, etc are also taken into account while calculating the premium of property insurance. The presence of such devices on your property can attract discounts on the premium of the insurance policy.

There is another factor to consider here – some insurance companies pay for the replacement of the damaged items with new devices and therefore, the premium is high. Some other insurance companies make the payout only after deducting the depreciation value of the device. The value of the premium is comparatively lesser than the first option. The choice is with the property owner who considers all factors and then chooses the right insurance cover.