ABCs to reading a home insurance policy

This implies where there is inadequate coverage at the time of loss you will bear the proportion of the difference. It is also referred to as Underinsurance. Average clause usually kicks in if sum insured falls below a certain percentage of the replacement cost. 

If average clause is not stated in the policy, it means your insurance coverage is based on first-loss.

Shows you how the claims payout is calculated especially where the average clause and depreciation are applied to various sections - building, home contents and renovations. 

If you choose to repair, replace or reconstruct the damages, some insurers may deduct appreciation from the payout.

Most policies will apply a claim limit or sub-limit to specific items such as money, valuables and electronic products. It may be a percentage of the sum insured on home contents or a dollar limit. If you have special possessions, you should get a policy that takes care of it at a reasonable value after taking into account of the claim limit.

Understand how the insurer defines terms such as building, home contents, renovations, money and valuables. Fixtures and fittings added on during renovations such as kitchen cabinets and built-in wardrobes are generally not considered as part of the building structure.

This is where you are responsible for part of the cost. Bearing the first $250 versus first $100 for the specified loss can make a difference to your claims payout.

Unlike average clause, you are not required to insure your assets at full value. In a first-loss policy, you are compensated only up to the amount insured - even if your actual loss turns out greater. 

While home insurance is to protect you from events beyond your control, there are instances where you can't claim. Examples of such exclusions if the losses are caused by:

• wear and tear or gradual deterioration
• pest or insects
• during the repair or reconstruction process
• willful act by you, your family or domestic helper
• or while your home is left vacant for a certain period of time

Always ask yourself how much you can afford to lose if your home goes under. The worst possible scenario is a fire or water damage which could spread from your neighbour's house. This will help you decide how much cover you need to rebuild your home. We recommend you to obtain at least 3 quotes or speak to a local agent to get advice for the best options.